Poverty: Recent Episodes
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Search Poverty for articles that deal with the issues of lower income people and their government classification as such.
The classical liberal economist Edmund Phelps wants government to aid poor people, but he clearly is not an egalitarian. His philosophy would be unacceptable to today's "woke" egalitarians.
Original Article: "Edmund Phelps on Egalitarianism"
Because of inflation and a lack of a savings ethic, Americans are less prepared for retirement than ever. The numbers are discouraging.
Original Article: "Ready for Retirement? Fewer and Fewer Americans Are Saving for That Time"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The standard line from progressives is that free markets usually fail in developing countries. The economic numbers tell a much different story.
Original Article: "Free Markets DO Work in Developing Countries"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The modern progressive narratives claim that the wealth of the West and especially of the USA was built upon the backs of slaves. In fact, slavery retarded economic growth.
Original Article: "The West Didn't Become Rich Because of Slavery But in Spite of It"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Turkey's economy is reeling under inflation rates likely reaching 170 percent. Not surprisingly, the worst of it is felt by regular people just trying to make a living.
Original Article: "The Turkish Way"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Entrepreneurship is the key to real development, but cultural attitudes are often a significant barrier to entrepreneurship in the developing world.
Original Article: "Entrepreneurship in Developing Countries: Still a Work in Progress"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Elites are attacking the government of Mauritius for having lower tax rates than other African countries. The real issue is the levels of taxation in other African countries.
Original Article: "If Mauritius Is a Tax H(e)aven, Other African Countries Must Be Tax Hells"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The standard line among the Great Reset crowd is that capitalism exploits poor nations and causes poverty. In reality, capitalism and free markets have reduced poverty around the world.
Original Article: "Developing Countries Don't Need Wealth Transfers; They Need Free Markets"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Forget the notion that the Fed "fights inflation." In fact, the Fed exists to promote inflation.
Original Article: "Even When There Is Inflation, the Fed STILL Fights Falling Prices"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Why did Barbados postslavery develop a more robust economy than Jamaica even though the people had similar ethnic backgrounds?
Original Article: "History and Institutions Matter: The Postslavery Development of Jamaica and Barbados"
This Audio Mises Wire is generously sponsored by Christopher Condon.
People must still compete for resources in a socialist economy. In fact, the competition is intense. On the other hand, thanks to markets, basic necessities—and even basic luxuries—are now more more accessible than ever.
Original Article: "How Markets Have Delivered More Economic Equality"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
The empirical evidence shows that neither minimum wages or welfare reduce poverty. In fact, minimum wages tend to increase the cost of living while poverty rates have gone nowhere since the Great Society was introduced.
Original Article: "Progressivism's Failures: From Minimum Wages to the Welfare State"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
“Poverty in society is overcome by productivity, and in no other way. There is no political alchemy which can transmute diminished production into increased consumption.”
Original Article: "Biden’s Rescue Plan Won't Reduce Poverty"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
To offer a semblance of solidarity with the working class, wealthy leftists have substituted identity politics for class conflict, and attempted to recast economic problems as problems of racism or bigotry.
Original Article: "Understanding Inequality Requires Much More Than Calling Everything Racist"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Murray Rothbard wrote, “The rate of interest is the price of ‘time.’” It’s safe to say the world’s central banks have manipulated and mispriced what time is worth.
Original Article: "Today's Negative Rates Are the Path to Poverty"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
The World Economic Forum and its related institutions in combination with a handful of governments and a few high-tech companies want to lead the world into a new era without property or privacy.
Original Article: "No Privacy, No Property: The World in 2030 According to the WEF".
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Ryan McMaken joins the show to discuss Adam Fergusson's seminal history of Weimar-era hyperinflation in Germany, When Money Dies. Americans accustomed to the dollar's king status have no idea how quickly and brutally a currency can lose value, especially when war finance distorts the entire structure of a nation's economy.
What follows is sobering: hunger, violence, crime, and degradation. This fascinating book makes for a great study of how and why inflation rises quickly, and provides a cautionary tale for central banks and fiscal policy makers today.Plus listen to the show for a link to your free copy of the book!
Read Hans Sennholz on Hyperinflation at Mises.org/HyperInflation
Find Henry Hazlitt's What You Should Know About Inflation at Mises.org/InflationHazlitt
Read Lyn Alden's article on inflation at Mises.org/Alden
As Thanksgiving approaches, we should be thankful to society’s economic benefactors rather than condemning them because of the wrongheaded ideology of egalitarianism.
Original Article: "Giving Thanks to Society’s Economic Benefactors".
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
The film Black Panther offered an attractive view of an African nation untouched by slavery or colonialism. Unfortunately, the film offers a rather dubious counterfactual.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Original Article: "The Myth of Wakanda: How Hollywood Distorts the Legacy of Colonialism".
Many of the "solutions" peddled by today's experts are more likely to increase wealth inequality than decrease it.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "What "Experts" Miss about Economic Inequality".
Vague and generalizing theories about culture and race don't tell us much about the wealth gap between blacks and whites. The answer is more complex.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Problems with Theories on the Black-White Wealth Gap".
Government policy encourages single parent household formation while discouraging full-time employment and driving up housing costs. This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Original Article: "Three Barriers to Improving Poverty Rates in America".
Thomas Sowell concluded that, “A vastly expanded welfare state in the 1960s destroyed the black family, which had survived centuries of slavery and generations of racial oppression.” This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Original Article: "The Welfare State Did What Slavery Couldn't Do".
There are two kinds of inequality. One develops as societies innovate and become more productive. The other kind results from government corruption and intervention.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Growth and Income Inequality in Africa".
The story of how housing became so unaffordable for so many is a tragic one. But this is a story of our own making, thanks to decades of misguided government regulations.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "How Government Regulations Make Housing Unaffordable".
It's a good thing when politicians recognize that there are people out there who are less fortunate than the political class. But this empathy only does anyone any good if policymakers refrain from socialistic government schemes that make poverty worse.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Empathy for the Poor Is Not Enough".
The saddest aspect of this economic ignorance is that these evangelicals have completely ignored the real reductions in poverty rates in the past forty years, reductions that are due to liberalizing economies that once were in socialist straitjackets.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "What Anticapitalist Christian Economists Get Wrong".
Measures of wealth inequality overstate actual inequality in terms of the standard of living of wealthy people relative to the rest.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Inequality is Overstated—and Overrated".
Beyond the usual arguments about incentives and taxes, a Universal Basic Income is a dangerous policy that supercharges the state and threatens to heighten tensions between different groups in society.
Original Article: "4 Reasons to Oppose a Universal Basic Income"
By slapping new regulations on high-interest credit cards, Bernie and Ocasio-Cortez will just prevent high-risk borrowers from getting loans.
Original Article: "Bernie and Ocasio-Cortez Declare War on the Poor With Anti-Credit-Card Law".
Both ideological anti-capitalism and economic factors contribute to the way Africa lags the rest of the world in the conquest of poverty. Original Article: "In Africa, Poverty Grows Because of the Elites' Anti-Capitalism"
The New Deal invigorated a bureaucratic state which had already done much to limit the entrepreneurial opportunities of Americans of all racial and economic backgrounds.
Original Article: "Ocasio-Cortez's Selective Memory on the New Deal".
[Chapter 20 of The Conquest of Poverty, 1996.]
The theme of this book is the conquest of poverty, not its "abolition." Poverty can be alleviated or reduced, and in the Western world in the last two centuries it has been almost miraculously alleviated and reduced; but poverty is ultimately individual, and individual poverty can no more be "abolished" than disease or death can be abolished.
Individual or family poverty results when the "breadwinner" cannot in fact win bread; when he cannot or does not produce enough to support his family or even himself. And there will always be some human beings who will temporarily or permanently lack the ability to provide even for their own self-support. Such is the condition of all of us as young children, of many of us when we fall ill, and of most of us in extreme old age. And such is the permanent condition of some who have been struck by misfortune — the blind, the crippled, the feeble-minded. Where there are so many causes there can be no all-embracing cure.
It is fashionable to say today that "society" must solve the problem of poverty. But basically each individual — or at least each family — must solve its own problem of poverty. The overwhelming majority of families must produce more than enough for their own support if there is to be any surplus available for the remaining families that cannot or do not provide enough for their own support. Where the majority of families do not provide enough for their own support — where society as a whole does not provide enough for its own support — no "adequate relief system" is even temporarily possible. Hence "society" cannot solve the problem of poverty until the overwhelming majority of families have already solved (and in fact slightly more than solved) the problem of their own poverty.
All this is merely stating in another form the Paradox of Relief referred to in Chapter 18: The richer the community, the less the need for relief, but the more it is able to provide; the poorer the community, the greater the need for relief, but the less it is able to provide.
And this in turn is merely another way of pointing out that relief, or redistribution of income, voluntary or coerced, is never the true solution of poverty, but at best a makeshift, which may mask the disease and mitigate the pain, but provides no basic cure.
Moreover, government relief tends to prolong and intensify the very disease it seeks to cure. Such relief tends constantly to get out of hand. And even when it is kept within reasonable bounds it tends to reduce the incentives to work and to save both of those who receive it and of those who are forced to pay it. It may be said, in fact, that practically every measure that governments take with the ostensible object of "helping the poor" has the long-run effect of doing the opposite. Economists have again and again been forced to point out that nearly every popular remedy for poverty merely aggravates the problem. I have analyzed in these pages such false remedies as the guaranteed income, the negative income tax, minimum-wage laws, laws to increase the power of the labor unions, opposition to labor-saving machinery, promotion of "spread-the-work" schemes, special subsidies, increased government spending, increased taxation, steeply graduated income taxes, punitive taxes on capital gains, inheritances, and corporations, and outright socialism.
But the possible number of false remedies for poverty is infinite. Two central fallacies are common to practically all of them. One is that of looking only at the immediate effect of any proposed reform on a selected group of intended beneficiaries and of overlooking the longer and secondary effect of the reform not only on the intended beneficiaries but on everybody. The other fallacy, akin to this, is to assume that production consists of a fixed amount of goods and services, produced by a fixed amount and quality of capital providing a fixed number of "jobs." This fixed production, it is assumed, goes on more or less automatically, influenced negligibly if at all by the incentives or lack of incentives of specific producers, workers, or consumers. "The problem of production has been solved," we keep hearing, and all that is needed is a fairer "distribution."
What is disheartening about all this is that the popular ideology on all these matters shows no advance — and if anything even a retrogression — compared with what it was more than a hundred years ago. In the middle of the nineteenth century the English economist Nassau Senior was writing in his journal:
It requires a long train of reasoning to show that the capital on which the miracles of civilization depend is the slow and painful creation of the economy and enterprise of the few, and of the industry of the many, and is destroyed, or driven away, or prevented from arising, by any causes which diminish or render insecure the profits of the capitalist, or deaden the activity of the laborer; and that the State, by relieving idleness, improvidence, or misconduct from the punishment, and depriving abstinence and foresight of the reward, which have been provided for them by nature, may indeed destroy wealth, but most certainly will aggravate poverty.Nassau Senior, journal Kept in France and Italy from 1848–52, London: Henry S. King, 2nd ed. 1871, Vol. I, pp. 4–5.
Man throughout history has been searching for the cure for poverty, and all that time the cure has been before his eyes. Fortunately, as far at least as it applied to their actions as individuals, the majority of men instinctively recognized it — which was why they survived. That individual cure was Work and Saving. In terms of social organization, there evolved spontaneously from this, as a result of no one's conscious planning, a system of division of labor, freedom of exchange, and economic cooperation, the outlines of which hardly became apparent to our forebears until two centuries ago. That system is now known either as Free Enterprise or as Capitalism, according as men wish to honor or disparage it.
It is this system that has lifted mankind out of mass poverty. It is this system that in the last century, in the last generation, even in the last decade, has acceleratively been changing the face of the world, and has provided the masses of mankind with amenities that even kings did not possess or imagine a few generations ago.
Because of individual misfortune and individual weaknesses, there will always be some individual poverty and even "pockets" of poverty. But in the more prosperous Western countries today, capitalism has already reduced these to a merely residual problem, which will become increasingly easy to manage, and of constantly diminishing importance, if society continues to abide in the main by capitalist principles. Capitalism in the advanced countries has already, it bears repeating, conquered mass poverty, as that was known throughout human history and almost everywhere, until a change began to be noticeable sometime about the middle of the eighteenth century. Capitalism will continue to eliminate mass poverty in more and more places and to an increasingly marked extent if it is merely permitted to do so.
In the chapter "Why Socialism Doesn't Work," I explained by contrast how capitalism performs its miracles. It turns out the tens of thousands of diverse commodities and services in the proportions in which they are socially most wanted, and it solves this incredibly complex problem through the institutions of private property, the free market, and the existence of money — through the interrelations of supply and demand, costs and prices, profits and losses. And, of course, through the force of competition. Competition will tend constantly to bring about the most economical and efficient method of production possible with existing technology — and then it will start devising a still more efficient technology. It will reduce the cost of existing production, it will improve products, it will invent or discover wholly new products, as individual producers try to think what product consumers would buy if it existed.
Those who are least successful in this competition will lose their original capital and be forced out of the field; those who are most successful will acquire through profits more capital to increase their production still further. So capitalist production tends constantly to be drawn into the hands of those who have shown that they can best meet the wants of the consumers.
Perhaps the most frequent complaint about capitalism is that it distributes its rewards "unequally." But this really describes one of the system's chief virtues. Though mere luck always plays a role with each of us, the increasing tendency under capitalism is that penalties are imposed roughly in proportion to error and neglect and rewards granted roughly in proportion to effort, ability, and foresight. It is precisely this system of graduated rewards and penalties, in which each tends to receive in proportion to the market value he helps to produce, that incites each of us constantly to put forth his greatest effort to maximize the value of his own production and thus (whether intentionally or not) help to maximize that of the whole community. If capitalism worked as the socialists think an economic system ought to work, and provided a constant equality of living conditions for all, regardless of whether a man was able or not, resourceful or not, diligent or not, thrifty or not, if capitalism put no premium on resourcefulness and effort and no penalty on idleness or vice, it would produce only an equality of destitution.
Another incidental effect of the inequality of incomes inseparable from a market economy has been to increase the funds devoted to saving and investment much beyond what they would have been if the same total social income had been spread evenly. The enormous and accelerative economic progress in the last century and a half was made possible by the investment of the rich — first in the railroads, and then in scores of heavy industries requiring large amounts of capital. The inequality of incomes, however much some of us may deplore it on other grounds, has led to a much faster increase in the total output and wealth of all than would otherwise have taken place.
Those who truly want to help the poor will not spend their days in organizing protest marches or relief riots, or even in repeated protestations of sympathy. Nor will their charity consist merely in giving money to the poor to be spent for immediate consumption needs. Rather will they themselves live modestly in relation to their income, save, and constantly invest their savings in sound existing or new enterprises, so creating abundance for all, and incidentally creating not only more jobs but better-paying ones.
The irony is that the very miracles brought about in our age by the capitalist system have given rise to expectations that keep running ahead even of the accelerating progress, and so have led to an incredibly shortsighted impatience that threatens to destroy the very system that has made the expectations possible.
If that destruction is to be prevented, education in the true causes of economic improvement must be intensified beyond anything yet attempted.
One would get the impression, reading most of the discussions in today's American newspapers and magazines, that no one had ever thought of doing anything for the poor until Franklin Roosevelt's New Deal in the 1930's, or even until President Johnson's "war on poverty" in the 1960's. Yet private charity is as old as mankind; and the history of governmental poor relief, even if we ignore the ancient world, can be traced back more than four centuries.
In England the first poor law was enacted in 1536. In 1547 the city of London levied compulsory taxes for the support of the poor. In 1572, under Elizabeth, a compulsory rate was imposed on a national scale. In 1576 the compulsion was imposed on local authorities to provide raw materials to give work to the unemployed. The Statute of 1601 compelled the Overseers of the Poor in every parish to buy "a convenient stock of flax, hemp, wool, thread, iron and other stuff to set the poor to work."
It was not compassion alone, or perhaps even mainly, that led to these enactments. During the reign of Henry VIII, bands of "sturdy beggars" were robbing and terrorizing the countryside, and it was hoped that the relief or the provision of work would mitigate this evil.
Poor relief, once started, kept growing. According to the early statistician, Gregory King (1648–1712), toward the end of the seventeenth century over one million persons, nearly a fifth of the whole English nation, were in occasional receipt of alms, mostly in the form of public relief paid by the parish. The poor rate was a charge of nearly £800,000 a year on the country and rose to a million in the reign of Anne.
There was seldom any shame felt in receiving outdoor relief, and it was said to be given with a mischievous profusion. Richard Dunning declared that in 1698 the parish dole was often three times as much as a common laborer, having to maintain a wife and three children, could afford to expend upon himself; and that persons once receiving outdoor relief refuse ever to work, and "seldom drink other than the strongest ale-house beer, or eat any bread save what is made of the finest wheat flour." The statement must be received with caution, but such was the nature of the complaint of some rate-payers and employers about the poor law.G. M. Trevelyan, English Social History (David McKay, 1942), p. 278.
Guaranteed Income In 1795 a momentous step was taken that enormously aggravated the whole relief problem. The justices of Berkshire, meeting at Speenhamland, decided that wages below what they considered an absolute minimum should be supplemented by the parish in accordance with the price of bread and the number of dependents a man had. Their decision received parliamentary confirmation the next year. In the succeeding 35 years this system (apparently the first "guaranteed minimum income") brought a train of evils.
The most obvious to the taxpayers was a geometric rise in the cost of relief. In 1785 the total cost of poor law administration was a little less than £2 million; by 1803 it had increased to a little more than £4 million; and by 1817 it had reached almost £8 million. This final figure was about one-sixth of total public expenditure. Some parishes were particularly hard hit. One Buckinghamshire village reported in 1832 that its expenditure on poor relief was eight times what it had been in 1795 and more than the rental of the whole parish had been in that year.Encyclopaedia Britannica, 1965. Article, "Poor Law." Vol. 18, p. 218. One village, Cholesbury, became bankrupt altogether, and others were within measurable distance of it.
But even the public expense was not the worst of the evil. Much greater was the increasing demoralization of labor, culminating in the riots and fires of 1830 and 1831.
It was in the face of this situation that the Whig government decided to intervene. In 1832 a royal commission was appointed to inquire into the whole system. It sat for two years. The report and recommendations it brought in became the basis of the reforms adopted in Parliament by a heavy majority (319 to 20 on the second reading) and embodied in the Poor Law Amendment Act of 1834.
The report was signed by the nine commissioners. The secretary was Edwin Chadwick; one of the commissioners was the eminent economist, Nassau W. Senior. The text of the report itself ran to 362 pages; together with its appendices it came to several bulky volumes. It was widely regarded as a "masterly example of a thorough, comprehensive, and unbiased inquiry." As late as 1906, one British writer, W. A. Bailward, described it as a "Blue-book which, as a study of social conditions, has become a classic."J. St. Loe Strachey (ed.), The Manufacture of Paupers (London: John Murray, 1907), p. 108.
Repeating Ancient Errors But today the report is just as if it had never existed. Schemes are being proposed on all sides, which their sponsors assume to be brilliantly original, but which would restore the very relief and income-guarantee systems that failed so miserably in the late eighteenth and early nineteenth centuries, and which the report of 1834 so devastatingly analyzed.
The Speenhamland plan, and schemes like it, endeavored to insure that people were paid, not in accordance with the going rate of wages, or the market value of their services, but in accordance with their "needs," based on the size of their families. A married man was paid more than a single man, and paid still more on a scale upward in accordance with the number of his children. The government — i.e., the taxpayers — paid the difference between his market rate of wages and this scale of minimums.
One effect, of course, was to depress the market rate of wages, because the employer found he could reduce the wages he offered and let the taxpayers make up the deficiency. It made no difference to the worker himself who paid him how much of the fixed total that he got. Another effect was to demoralize the efficiency of labor, because a man was paid in accordance with the size of his family and not in accordance with the worth of his efforts. The average unskilled laborer had nothing to gain by improving his efforts and efficiency, and nothing to lose by relaxing them.
Conditions in 1834 But let us turn to the text of the Commission's report, and let the following excerpts speak for themselves. They are taken almost at random:
The laborer under the existing system need not bestir himself to seek work; he need not study to please his master; he need not put any restraint upon his temper; he need not ask relief as a favor. He has all a slave's security for subsistence, without his liability to punishment. As a single man, indeed, his income does not exceed a bare subsistence; but he has only to marry, and it increases. Even then it is unequal to the support of a family; but it rises on the birth of each child. If his family is numerous, the parish becomes his principal paymaster; but small as the usual allowance of 2s. a head may be, yet when there are more than three children, it generally exceeds the average wages given in a pauperized district. A man with a wife and six children, entitled, according to the scale, to have his wages made up to 16s. a week, in a parish where the wages paid by individuals do not exceed 10s. or 12s., is almost an irresponsible being. All the other classes of society are exposed to the vicissitudes of hope and fear; he alone has nothing to lose or to gain. ...
The answer given by the magistrates, when a man's conduct is urged by the overseer against his relief, is: "We cannot help that; his wife and family are not to suffer because the man has done wrong." ...
Too frequently petty thieving, drunkenness, or impertinence to a master, throw able-bodied laborers, perhaps with large families, on the parish funds, when relief is demanded as a right, and if refused, enforced by a magistrate's order, without reference to the cause which produced his distress, viz., his own misconduct, which remains as a barrier to his obtaining any fresh situation, and leaves him a dead weight upon the honesty and industry of his parish. ...
It appears to the pauper that the government has undertaken to repeal, in his favor, the ordinary laws of nature; to enact that the children shall not suffer from the misconduct of their parents — the wife for that of the husband, or the husband for that of the wife: that no one shall lose the means of comfortable subsistence, whatever be his indolence, prodigality, or vice: in short, that the penalty which, after all, must be paid by some one for idleness and improvidence, is to fall, not on the guilty person or on his family, but on the proprietors of the lands and houses encumbered by his settlement. ...
"In the rape of Hastings," says Mr. Majendie, "the assistant overseers are reluctant to make complaints for neglect of work, lest they should become marked men and their lives rendered uncomfortable or even unsafe. Farmers permit their laborers to receive relief, founded on a calculation of a rate of wages lower than that actually paid: they are unwilling to put themselves in collision with the laborers, and will not give an account of earnings, or if they do, beg that their names not be mentioned. ... Farmers are afraid to express their opinions against a pauper who applies for relief, for fear their premises should be set fire to. ...
"In Brede, the rates continue at an enormous amount. The overseer says much of the relief is altogether unnecessary; but he is convinced that if an abatement was attempted, his life would not be safe." ... "I found in Cambridgeshire," says Mr. Power, "that the apprehension of this dreadful and easily perpetrated mischief [fire] has very generally affected the minds of the rural parish officers of this country, making the power of the paupers over the funds provided for their relief almost absolute, as regards any discretion on the part of the overseer." ...
"Mr. Thorn, assistant overseer of the parish of Saint Giles, Cripplegate, London, says —
"The outdoor relief [i.e., relief given outside of a poorhouse] in the city of London would require almost one man to look after every half dozen of able-bodied men, and then he would only succeed imperfectly in preventing fraud. They cheat us on all hands. ...
"By far the greater proportion of our new paupers are persons brought upon the parish by habits of intemperance. ... After relief has been received at our board, a great portion of them proceed with the money to the palaces of gin-shops, which abound in the neighborhood. However diligent an assistant overseer, or an officer for inquiry, may be, there are numerous cases which will baffle his utmost diligence and sagacity. ...
"It is the study of bad paupers to deceive you all they can, and as they study their own cases more than any inquirer can study each of the whole mass of different cases which he has to inquire into, they are sure to be successful in a great many instances. The only protection for the parish is to make the parish the hardest taskmaster and the worst paymaster than can be applied to.'"
To economize space, my remaining quotations from the Commissioners' criticisms of the conditions they found must be few and brief.
In many parishes, "the pressure of the poor-rate [i.e., taxes on property] has reduced the rent to half, or to less than half, of what it would have been if the land had been situated in an unpauperized district, and some in which it has been impossible for the owner to find a tenant. ..."
Says Mr. Cowell: "The acquaintance I had with the practical operation of the Poor Laws led me to suppose that the pressure of the sum annually raised upon the ratepayers, and its progressive increase, constituted the main inconvenience of the Poor Law system. The experience of a few weeks served to convince me that this evil, however great, sinks into insignificance when compared with the dreadful effects which the system produces on the morals and happiness of the lower orders." ...
The relief system was found to encourage "bastardy.'' "To the woman, a single illegitimate child is seldom any expense, and two or three are a source of positive profit. ... The money she receives is more than sufficient to repay her for the loss her misconduct has occasioned her, and it really becomes a source of emolument. ...
The sum allowed to the mother of a bastard is generally greater than that given to the mother of a legitimate child; indeed the whole treatment of the former is a direct encouragement to vice. ...
Witness mentioned a case within his own personal cognizance, of a young woman of four-and-twenty, with four bastard children; she is receiving 1s. 6d. weekly for each of them. She told him herself, that if she had one more she should be very comfortable. Witness added, "They don't in reality keep the children; they let them run wild, and enjoy themselves with the money."
Much Like Today Given a modernization of phraseology and an appropriate change in the monetary amounts mentioned, this description of relief conditions and consequences in the early years of the nineteenth century could easily pass as a description of such conditions in, say, New York City in 1971.
What, then, in the face of these results of the prior Poor Law, were the recommendations of the commission? It desired to assure "that no one need perish from want"; but at the same time it suggested imposing conditions to prevent the abuse of this assurance.
It may be assumed, that in the administration of relief, the public is warranted in imposing such conditions on the individual relieved as are conducive to the benefit either of the individual himself, or of the country at large, at whose expense he is to be relieved.
The first and most essential of all conditions ... is that his situation on the whole shall not be made really or apparently so eligible [i.e., attractive] as the situation of the independent laborer of the lowest class. Throughout the evidence it is shown, that in proportion as the condition of any pauper class is elevated above the condition of independent laborers, the condition of the independent class is depressed; their industry is impaired, their employment becomes unsteady, and its remuneration in wages is diminished. Such persons, therefore, are under the strongest inducements to quit the less eligible class of laborers and enter the more eligible class of paupers. ... Every penny bestowed, that tends to render the condition of the pauper more eligible than that of the independent laborer, is a bounty on indolence and vice. ...
We do not believe that a country in which ... every man, whatever his conduct or his character [is] ensured a comfortable subsistence, can retain its prosperity, or even its civilization.
The main principle of a good Poor-Law administration [is] the restoration of the pauper to a position below that of the independent laborer.
The report then followed with its detailed recommendations, which involve many administrative complexities.
The Workhouse System In 1841, seven years after the enactment of the new Poor Law, when a whole series of amendments were being proposed to it by various members of Parliament, Nassau Senior, in an anonymous pamphlet signed merely "A Guardian," came to the defense of the original act, and explained its rationale perhaps in some ways better than did the original report.
"In the first place," he wrote, "it was necessary to get rid of the allowance system — the system under which relief and wages were blended into one sum, the laborer was left without motive to industry, frugality, or good conduct, and the employer was forced, by the competition of those around him, to reduce the wages which came exclusively from his own pocket, and increase the allowance to which his neighbors contributed.
Supposing this deep and widely extended evil to be extirpated, and the poorer classes to be divided into two marked portions — independent laborers supported by wages and paupers supported by relief — there appeared to be only three modes by which the situation of the pauper could be rendered the less attractive.
First, by giving to the pauper an inferior supply of the necessaries of life, by giving him worse food, worse clothing, and worse lodging than he could have obtained from the average wages of his labor. ...
A second mode is to require from the applicant for relief, toil more severe or more irksome than that endured by the independent laborer. ...
The third mode is, to a certain degree, a combination of the two others, avoiding their defects. It is to require the man who demands to be supported by the industry and frugality of others to enter an abode provided for him by the public, where all the necessaries of life are amply provided, but excitement and mere amusement are excluded — an abode where he is better lodged, better clothed, and more healthily fed than he would be in his own cottage, but is deprived of beer, tobacco, and spirits — is forced to submit to habits of order and cleanliness — is separated from his usual associates and his usual pastimes, and is subject to labor, monotonous and uninteresting. This is the workhouse system."
The Royal Commission, in defending that system, had argued that even if "relief in a well-regulated workhouse" might be,
in some rare cases, a hardship, it appears from the evidence that it is a hardship to which the good of society requires the applicant to submit. The express or implied ground of his application is, that he is in danger of perishing from want. Requesting to be rescued from that danger out of the property of others, he must accept assistance on the terms, whatever they may be, which the common welfare requires. The bane of all pauper legislation has been the legislation for extreme cases. Every exception, every violation of the general rule to meet a real case of unusual hardship, lets in a whole class of fraudulent cases, by which that rule must in time be destroyed. Where cases of real hardship occur, the remedy must be applied by individual charity, a virtue for which no system of compulsory relief can be or ought to be a substitute.
Destroying the Beneficiary To later generations the reforms introduced by the Poor Law Amendments of 1834 came to seem needlessly harsh and even heartless. But the Poor Law Commissioners did courageously try to face up to a two-sided problem that the generation before them had ignored and many of the present generation seem once more to ignore — "the difficult problem'' as Nassau Senior put it, "how to afford to the poorer classes adequate relief without material injury to their diligence or their providence." In his 1841 pamphlet we find him rebuking
the persons who would legislate for extreme cases — who would rather encourage any amount of debauchery, idleness, improvidence, or imposture, than suffer a single applicant to be relieved in a manner which they think harsh. ... [They] would reward the laborer for throwing himself out of work, by giving him food better, and more abundant, than he obtained in independence. ... They are governed by what they call their feelings, and those feelings are all on one side. Their pity for the pauper excludes any for the laborer, or for the rate-payer. They sympathize with idleness and improvidence, not with industry, frugality, and independence. ... It is scarcely necessary to remind the reader of the well-known principle, that if relief be afforded on terms which do not render it less eligible than independent labor, the demand for it will increase, while there is a particle of property left to appease it.
However the Poor Law Reform of 1834 may be considered by many today, it proved sufficiently satisfactory to successive British governments to be retained with only minor changes until the end of the nineteenth century. But there was mounting sentiment against it as the years wore on. Much of this was stirred up by the novels of Charles Dickens and others, with their lurid pictures of conditions in the workhouses. Toward the end of the century the more stringent regulations were gradually relaxed. Ih 1891 supplies of toys and books were permitted in the workhouses. In 1892 tobacco and snuff could be provided. In 1900 a government circular recommended the grant of outdoor relief (i.e., relief outside of the workhouses) for the aged of good character.
A 1905 War on Poverty A new Royal Commission on the Poor Laws was set up in 1905. (One member was Beatrice Webb.) It brought in a report in 1909, but as the report was not unanimous, the Government took no action on it. However, new "social legislation" continued to be enacted. An Old Age Pensions Act was passed in 1908. And in 1909 David Lloyd George, the radical chancellor of the exchequer, anticipating President Lyndon Johnson's "war on poverty" by more than half a century, exclaimed in introducing his new budget: "This is a war budget for raising money to wage implacable warfare against poverty and squalidness."
Finally, the National Insurance Act of 1911, providing sickness and unemployment benefits on a contributory basis to a selected group of industrial workers, marked the birth of the modern Welfare State in England, which reached maturity with the enactment of the Beveridge reforms in 1944.
But the Poor Law Commissioners of 1834, and the Parliament that enacted their recommendations, had frankly recognized and faced a problem that their political successors seem, as I have said, almost systematically to ignore — "the difficult problem," to quote once more the words in which Nassau Senior stated it, "how to afford to the poorer classes adequate relief without material injury to their diligence or their providence."
How to Afford Relief Without Destroying Incentives Is this problem soluble? Or does it present an inescapable dilemma? Can the state undertake to provide adequate relief to everybody who really needs and deserves it without finding itself supporting the idle, the improvident, and the swindlers? And can it frame rigid rules that would adequately protect it against fraud and imposture without as a result denying help to some of those really in need? Can the state, again, provide really "adequate" relief for any extended period even to the originally "deserving" without determining or destroying their incentives to industry, frugality, and self-support? If people can get an adequate living without working, why work? Can the state, finally, provide "adequate" relief to all the unemployed, or, even more, guaranteed incomes for all, without undermining by excessive taxation the incentives of the working population that is forced to provide this support? Can the state, in sum, provide "adequate" relief to all without gravely discouraging and inhibiting the production out of which all relief must come? — without letting loose a runaway inflation? — without going bankrupt?
This apparent dilemma may be surmountable. But no relief system or welfare-state system so far embarked upon has satisfactorily surmounted it; and the problem certainly cannot be solved until the alternatives it presents are candidly recognized and examined.
[Originally appeared in The Freeman (March 1971).]
In order to understand the disaster that is unfolding in Venezuela, we need to journey through the most recent century of our history and look at how our institutions have changed over time. What we will find is that Venezuela once enjoyed relatively high levels of economic freedom, although this occurred under dictatorial regimes.
But, when Venezuela finally embraced democracy, we began to kill economic freedom. This was not all at once, of course. It was a gradual process. But it happened at the expense of the welfare of millions of people.
And, ultimately, the lesson we learned is that socialism never, ever works, no matter what Paul Krugman, or Joseph Stiglitz, or guys in Spain like Pablo Iglesias say.
It was very common during the years we suffered under Hugo Chávez to hear these pundits and economists on TV saying that this time, socialism is being done right. This time, the Venezuelans figured it out.
They were, and are wrong.
On the other hand, there was a time when this country was quite prosperous and wealthy, and for a time Venezuela was even referred to as an “economic miracle” in many books and articles.
However, during those years, out of the five presidents we had, four were dictators and generals of the army. Our civil and political rights were restricted. We didn’t have freedom of the press, for example; we didn’t have universal suffrage. But, while we lived under a dictatorship, we could at least enjoy high levels of economic freedom.
A Brief Economic History of VenezuelaThe economic miracle began a century ago, when from 1914 to 1922, Venezuela entered the international oil race. In 1914, Venezuela opened its first oil well. Fortunately, the government did not make the mistake of attempting to manage the oil business, or own the wells. The oil wells were privately owned, and in many cases were owned by private international companies that operated in Venezuela. It wasn’t totally laissez-faire, of course. There were tax incentives and other so-called concessions employed to promote exploration and exploitation of oil. But most industries — including the oil industry — remained privatized.
Moreover, during this period, tax rates in the country were relatively low.
In 1957, the marginal tax rate for individuals was 12 percent. There was certainly a state presence, and the public sector absorbed 20 percent of GDP. But, government spending was used mainly to build the country’s basic infrastructure.
The area of international trade was relatively free as well — and very free compared to today. There were tariffs that were relatively high, but there were no other major barriers to trade such as quotas, anti-dumping laws, or safeguards.
Other economic controls were few as well. There were just a few state-owned companies and virtually no price controls, no rent controls, no interest-rate controls, and no exchange-rate controls.
Of course, we weren’t free from the problems of a central bank, either. In 1939, Venezuela created its own central bank. But, the bank was largely inactive and functioned primarily defending a fixed exchange rate with the US dollar.
Moving Toward More InterventionismDespite the high levels of economic freedom that existed during those years, government legislation started to chip away at that freedom. Changes included the nationalization of the telephone company, the creation of numerous state-owned companies, and state-owned banks. That happened in 1950. The Venezuelan government thus began sowing the seeds of destruction, and you can see the continued deterioration in the level of economic freedom in the decade of the 1950s.
In 1958, Venezuela became a democracy when the dictatorship was overthrown. With that came all the usual benefits of democracy such as freedom of the press, universal suffrage, and other civil rights. Unfortunately, these reforms came along with continued destruction of our economic freedom.
The first democratically elected president was Rómulo Betancourt. He was a communist-turned-social democrat. In fact, while he was in exile, he founded the Communist Party in Costa Rica and helped found the Communist Party in Colombia as well. Not surprisingly, as president, he started destroying the economic institutions we had by implementing price controls, rent controls, and other regulations we hadn’t had before. On top of that, he and his allies created a new constitution that was hostile to private property.
In spite of this — or perhaps because of it — Betancourt is almost universally revered in Venezuela as “the father of our democracy.” This remains true even today as Venezuela collapses.
Of course, compared to today, we had far greater economic freedom under Betancourt than we do in today’s Venezuela. But, all of the presidents — with one exception — who came after Betancourt took similar positions and continued to chip away at economic freedom. The only exception was Carlos Andrés Pérez who in his second term attempted some free market reforms. But, he executed these later reforms so badly and haphazardly that markets ended up being blamed for the resulting crises.
The Rise of Hugo ChávezOver time, the destruction of economic freedom led to more and more impoverishment and crisis. This in turn set the stage for the rise of a political outsider with a populist message. This, of course, was Hugo Chávez. He was elected in 1998 and promised to replace our light socialism with more radical socialism. This only accelerated the problems we had been facing for decades. Nevertheless, he was able to pass through an even more anti-private-property constitution. Since Chávez’s death in 2013, the attacks on private property have continued, and Chávez’s successor, Nicolás Maduro, promises only more of the same. Except now, the government is turning toward outright authoritarian socialism, and Maduro is seeking a new constitution in which private property is almost totally abolished, and Maduro will be allowed to remain in power for life.
A Legacy of PovertySo, what are the results of socialism in Venezuela? Well, we have experienced hyperinflation. We have people eating garbage, schools that do not teach, hospitals that do not heal, long and humiliating lines to buy flour, bread, and basic medicines. We endure the militarization of practically every aspect of life.
The cost of living has skyrocketed in recent years.
Let’s look at the cost of goods in services in terms of a salary earned by a full college professor. In the 1980s, our “full professor” needed to pay almost 15 minutes of his salary to buy one kilogram of beef. Today, in July 2017, our full professor needs to pay the equivalent of 18 hours to buy the same amount of beef. During the 1980s, our full professor needed to pay almost one year’s salary for a new sedan. Today, he must pay the equivalent of 25 years of his salary. In the 1980s, a full professor with his monthly salary could buy 17 basic baskets of essential goods. Today, he can buy just one-quarter of a basicbasket.
And what about the value of our money? Well, in March 2007, the largest denomination of paper money in Venezuela was the 100 bolivar bill. With it, you could buy 28 US dollars, 288 eggs, or 56 kilograms of rice. Today, you can buy .01 dollars, 0.2 eggs, and 0.08 kilograms of rice. In July 2017, you need five 100-bolivar bills to buy just one egg.
So, socialism is the cause of the Venezuelan misery. Venezuelans are starving, eating garbage, losing weight. Children are malnourished. Anyone in Venezuela would be happy to eat out of America’s trashcans. It would be considered gourmet.
So, what’s the response of our society? Well, it’s the young people who are leading the fight for freedom in Venezuela in spite of what the current political leaders tell them to do. They don’t want to be called “the opposition.” They are the resistance, in Spanish, “la resistencia.” They are the real heroes of freedom in our country, but the world needs to know that they have often been killed by a tyrannical government, and all members of the resistance are persecuted daily.
Nevertheless, a new pro-market leadership must emerge before we can expect many major changes. Our current political opposition parties also hate free markets. They don’t like Maduro, but they still want their version of socialism.
This is not surprising. As Venezuelans, our poor understanding of the importance of freedom and free markets has created our current disaster. We Venezuelans never really understood freedom in its broader dimension because when we enjoyed high levels of economic freedom, we allowed the destruction of political and civil rights, and when we finally established a democracy, we allowed the destruction of economic freedom.
But there is reason for hope. Along with the Mises Institute we do believe that a revolution in ideas can really bring a new era to Venezuela. On behalf of the resistance and millions of people in our country, we thank the Mises Institute for this opportunity to briefly tell the full history of Venezuela. Thank you very much.
[A selection from The Conquest of Poverty.]
From the beginning of history, sincere reformers as well as demagogues have sought to abolish or at least to alleviate poverty through state action. In most cases their proposed remedies have only served to make the problem worse.
The most frequent and popular of these proposed remedies has been the simple one of seizing from the rich to give to the poor. This remedy has taken a thousand different forms, but they all come down to this. The wealth is to be "shared," to be "redistributed," to be "equalized." In fact, in the minds of many reformers it is not poverty that is the chief evil but inequality.
All schemes for redistributing or equalizing incomes or wealth must undermine or destroy incentives at both ends of the economic scale. They must reduce or abolish the incentives of the unskilled or shiftless to improve their condition by their own efforts; and even the able and industrious will see little point in earning anything beyond what they are allowed to keep. These redistribution schemes must inevitably reduce the size of the pie to be redistributed. They can only level down. Their long-run effect must be to reduce production and lead toward national impoverishment.
The problem we face is that the false remedies for poverty are almost infinite in number. An attempt at a thorough refutation of any single one of them would run to disproportionate length. But some of these false remedies are so widely regarded as real cures or mitigations of poverty that if I do not refer to them I may be accused of having undertaken a book on the remedies for poverty while ignoring some of the most obvious.
The most widely practiced "remedy" for low incomes in the last two centuries has been the formation of monopolistic labor unions and the use of the strike threat. In nearly every country today this has been made possible to its present extent by government policies that permit and encourage coercive union tactics and inhibit or restrict counteractions by employers.
As a result of union exclusiveness, of deliberate inefficiency, of featherbedding, of disruptive strikes and strike threats, the long-run effect of customary union policies has been to discourage capital investment and to make the average real wage of the whole body of workers lower, and not higher, than it would otherwise have been.
Nearly all of these customary union policies have been dishearteningly shortsighted. When unions insist on the employment of men who are not necessary to do a job (requiring unneeded firemen on diesel locomotives; forbidding the gang size of dock workers to be reduced below, say, twenty men no matter what the size of the task; demanding that a newspaper's own printers must duplicate advertising copy that comes in already set in type, etc.), the result may be to preserve or create a few more jobs for specific men in the short run, but only at the cost of making impossible the creation of an equivalent or greater number of more productive jobs for others.
The same criticism applies to the age-old union policy of opposing the use of labor-saving machinery. Labor-saving machinery is installed only when it promises to reduce production costs. When it does that, it either reduces prices and leads to increased production and sales of the commodity being produced, or it makes more profits available for increased reinvestment in other production. In either case its long-run effect is to substitute more productive jobs for the less productive jobs it eliminates.
A similar judgment must be passed on all "spread-the-work" schemes. The existing Federal Wage-Hour Law has been on the books for many years. It provides that the employer must pay a 50% penalty overtime rate for all hours that an employee works in excess of 40 hours a week, no matter how high the employee's standard hourly rate of pay.
This provision was inserted at the insistence of the unions. Its purpose was to make it so costly for the employer to work men overtime that he would be obliged to take on additional workers.
Experience shows that the provision has in fact had the effect of narrowly restricting the length of the working week…. But it does not follow that the hour restriction either created more long-term jobs or yielded higher total payrolls than would have existed without the compulsory 50% overtime rate.
No doubt in isolated cases more men have been employed than would otherwise have been. But the chief effect of the overtime law has been to raise production costs. Firms already working full standard time often have to refuse new orders because they cannot afford to pay the penalty overtime necessary to fill those orders. They cannot afford to take on new employees to meet what may be only a temporarily higher demand because they may also have to install an equivalent number of additional machines.
Higher production costs mean higher prices. They must therefore mean narrowed markets and smaller sales. They mean that fewer goods and services are produced. In the long run, the interests of the whole body of workers must be adversely affected by compulsory overtime penalties.
All this is not to argue that there ought to be a longer work week, but rather that the length of the work week, and the scale of overtime rates, ought to be left to voluntary agreement between individual workers or unions and their employers. In any case, legal restrictions on the length of the working week cannot in the long run increase the number of jobs. To the extent that they can do that in the short run, it must necessarily be at the expense of production and of the real income of the whole body of workers.
In a piece recently published at The American Conservative entitled “Americans, We Aren’t So Tough, and It Shows” I discussed the way in which a confluence of factors such as the decay of the intermediary institutions of civil society and economic insecurity leads to individuals being vulnerable and anxious. This vulnerability, I argued, leads to political tribes seeking to control the power of the state in order to prevent its massive power from being used against them, with the end result being increasing civil strife over the institutions of political power. In order to try and reduce such conflict, I argued that power should be dispersed throughout society, rather than concentrated with the state, in part by the revitalization of the institutions of civil society.While many online commentators agreed with the detrimental effects of the decline of civil society, a somewhat unexpected vein of criticism emerged, arguing that reducing the power of the government will only leave individuals even more vulnerable and at the mercy of powerful mega-corporations than ever before. Given the large role that economic insecurity plays in the anxiety that leads many people to look to political institutions for protection, it makes sense that the power of large corporations would be concerning. However, this fear is based on an incorrect conflation of political and economic power that misunderstands the way in which the state distorts the dispersion of market power.
At its foundation, state power is based on coercive power; the ability to compel people to carry out commands by physical compulsion or the threat of physical compulsion. As Mises put it “the essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning.” In stark contrast, in a market economy businesses, whether large or small, do not derive their power from an ability to beat, kill, or imprison customers or employees. Rather, businesses acquire the resources that make up their market power by satisfying the demands of customers who engage in mutually beneficial exchange. In other words, businesses only have the power that is voluntarily allotted to them by their customers.
Seeing how at the root all market power stemmed from the choices of consumers, Mises called this consumer sovereignty and argued that:
The direction of all economic affairs is in the market society a task of the entrepreneurs. Theirs is the control of production. They are at the helm and steer the ship. A superficial observer would believe that they are supreme. But they are not. They are bound to obey unconditionally the captain's orders. The captain is the consumer. Neither the entrepreneurs nor the farmers nor the capitalists determine what has to be produced. The consumers do that. If a businessman does not strictly obey the orders of the public as they are conveyed to him by the structure of market prices, he suffers losses, he goes bankrupt, and is thus removed from his eminent position at the helm. Other men who did better in satisfying the demand of the consumers replace him.
In contrast to the concrete and physical political power wielded by the state, the market power wielded by businesses seems almost ephemeral by comparison.
The perfect example of the power of consumers and why businesses, even giant multi-national ones, must fear their capricious whims is the fate of phone manufacturer Nokia. In 2007 Nokia controlled nearly 50 percent of the global mobile phone market, bestriding the world like a colossus. Some even speculated that Nokia might achieve monopoly status. However, in the ensuing years, like a mercurial lover, consumers around the globe spurned Nokia and instead turned to any number of other phone providers, such as Apple, Samsung, and Motorola. By 2013 Nokia’s global market share had fallen to a measly 3.1 percent. Indeed, how mighty are the fallen in the midst of the battle to win the approval of customers!
It must be acknowledged that since we live in a mixed economy, businesses, especially very large ones, are able to sometimes circumvent consumer sovereignty and get away with subpar service by way of limiting competition and consumer choice. Such a situation does serve to undermine the power of consumers, but rather than defending the consumer from such a power grab, the state is the entity that makes it possible to begin with.
Limitations and hindrances to competition come in many forms. One such hindrance is the vast regulatory barriers the state has erected around numerous industries that significantly increase the costs of starting and managing a business. Similarly there are instances of regulatory capture in which existing businesses collude with government in order to write rules and regulations that benefit the status quo while limiting and hurting competition. Those entrepreneurs who are unable to afford vast armies of lawyers, compliance specialists, and tax accountants are at a distinct disadvantage that is unrelated to their ability to meet the demands of consumers. At the most extreme end there are the instances in which the government grants monopoly privileges to certain companies and does away with the threat of competition entirely.
There can be no doubt that companies,especially large multinational ones of the kind people so often fret about, can accumulate large amounts of market power. However, all companies, no matter how large, are ultimately held responsible by consumers, unless they are undermined by the power of the state. Far from, shielding individuals from the power of large businesses, the state ultimately makes them answerable to no one but those who hold political power.
Dispersing power away from the centralized state will not leave individuals at the cruel mercy of soulless corporate automatons. Less government interference in the market makes businesses more responsive to customer demands, meaning that individuals are more empowered, not the other way around.
Homelessness today is often blamed on both "gentrification" and "neoliberalism." When these terms are used in the context of urban housing, it is usually implied that too much market freedom makes housing unaffordable to large swaths of the population. Thus, we are told capitalism is the primary culprit we now find in many large cities from Boston to Los Angeles.
But there is much more to the story.
Since the Progressive Era, government agencies — from the federal level on down — have been front and center in subsidizing, regulating, and planning city development in ways that have made housing in city centers more sparse and more expensive for households who aren't part of the hipster-millionaire demographic that so many urban planners and politicians are working hard to attract.
While rising demand for housing in a fixed number of square miles will indeed increase the price of land and housing, various types of government intervention makes housing more expensive than it would otherwise be. And sometimes, through zoning ordinances and other regulations, cities largely outlaw just the sorts of housing that are most needed by low-income residents.
To gain a better understanding of why homelessness is a recurring problem with apparently growing numbers, it is helpful to examine the origins of what is now standard operating procedure for cities: centralized urban planning. While very-low-income households and persons have long been part of the urban landscape in both the United States and Europe, city officials in the past often recognized that low-income neighborhoods were simply something that had to be tolerated. Although reformers often complained of the unclean and allegedly immoral nature of these places, a lack of government power — and resistance from private owners — prevented city officials from abolishing the areas of cities that provided housing. This housing — however sub-optimal it may have been — was preferable to homelessness.
The Progressives and the Idea of Urban Planning Those low-income communities began to meet more organized opposition during the Progressive Era, although it's not difficult to see why the idea of urban planning as we now know it was first embraced by Progressives. By the late nineteenth century, the situation in many American cities filled many middle-class Progressives with dismay. Lower-income neighborhoods of cities often lacked proper sewage infrastructure. They were dirty. Homicide rates were probably higher than they are today in many urban areas.
Much of the problem was blamed on "congestion" or "overcrowding" which today we would sometimes just call "density."
According to Steven Conn in his book Americans Against the City,
For Progressives in every major city, crowding was the scourge that had to be eliminated. "It is the overcrowding that breeds crime and vice," exhorted one writer, who insisted that the residents of these areas were not inherently bad, but were made so by their surroundings.
In many places, however, the awfulness of these places were exaggerated by reformists. After all, many of these "slums" contained multi-generational families, and longtime residents who made real efforts to maintain some level of safety and stability in the community. Many of the slums were really neighborhoods of boarding houses. They were crowded and uncomfortable. But they weren't shantytowns either.
Common Progressive "solutions" to the asserted problems of the slums can be found in a 1911 report from a New York City commission on congestion. The recommendations includeConn, page 29.:
Regulating the height of tenement buildings.Limiting lot occupancy.Providing space for parks, playgrounds, and recreational center.Regulating maximum occupancy for residential units [as part of an effort to abolish boardinghouses].Locating factories in a more deliberate and rational way. Most of these recommendations assumed a much larger role for the state in regulating, inspecting, and mandating changes to the current use of space. With this new sort of city planning, governments would need far more housing inspectors, zoning commissions, and a legal apparatus necessary to compel compliance.
Other cities followed suit, and "between 1907 and 1916 half of the nation's fifty largest cities did commission or publish comprehensive city plans to deal with overcrowding."Ibid. page 29.
Conn concludes: "Thus did city planning arrive in the Progressive City." And with it came zoning and a host of other mandates which gradually eliminated existing low-income housing units, while preventing the construction of new units to replace them.
Inherent in the new ideals, not surprisingly, was the idea that private sector actors ought not be allowed to decide on their own what was built in the city, and where. In the Progressive mind, too much private sector freedom had produced the "congestion" which Progressives sought to abandon and reform. This market activity was to be replaced by the decisions of city planners.
The Rise of Post-War Urban Renewal Progressive reformers, however, were limited in pursuing these goals by a lack of funding and by political opposition from both property owners and the residents of housing which was targeted for reform. After all, if housing was to be regulated with new occupancy rules and mandatory changes in density, this would lead to both rising prices and forced removals from existing housing.
Property owners likewise, opposed reforms because low-rent units are often only worth the trouble when a large number of paying customers are concentrated in a relatively small space.
To be sure, private owners were open to having their property purchased by government. And many cities were eager to tear down "blighted" neighborhoods. But government funding was often scarce. As noted by Colin Gordon, local governments
could not overcome the pervasive obstacles to redevelopment: private interests had no incentive to facilitate public policy, and public interests had no money to acquire or assemble private property.Gordon, Colin, "Blighting the Way: Urban Renewal, EconomicDevelopment, and the Elusive Definition of Blight." Fordham Urban Law Journal, Volume 31, No. 2, 2004.
Things changed, however, with the advent of the New Deal and the end of the Second World War.
What had a been a largely local move to reduce density and forcibly "clean up" lower-income neighborhoods in the Progressive Era became a national movement under the New Deal. The National Housing Act of 1937, for example, established a system of loans and grants-in-aid to local public housing authorities. Unfortunately, the thrust of these efforts was redevelopment and not the production of new units. In fact, use of the federal funds for redeveloping housing units "required the clearance of an equal number of 'blighted' properties."
Government subsidized redevelopment accelerated under the 1949 Federal Housing Act which
made federal funds available for the redevelopment of large areas rather than merely the removal of discrete slum conditions. Under the new law, local redevelopment corporations could buy and clear blighted areas with federal money, sell the land to private developers, and use the proceeds to cover the redevelopment costs.Ibid.
There was opposition from "private interests threatened or displaced by urban redevelopment plans," but
state and federal courts persistently held that the broad public purpose of redevelopment over-rode the claims of individual property owners, and that resale of cleared properties to private developers amounted to an appropriate public use.Ibid.
Over time, the new spirit of urban renewal, propelled forward by federal legislation and federal money, resulted in a war on "blighted neighborhoods," with the term "blight" proving to be quite flexible. Indeed, any neighborhood or city block that city planners regarded as producing too little tax revenue, or was simply unattractive, was targeting for a government funded-buyout, leveling, and redevelopment.
Through it all, government officials claimed they were increasing housing supply for American families. As noted by Walter Thompson:
Razing slums was key to reviving city centers, held the prevailing wisdom for many decades last century. In his 1949 State of the Union, President Harry Truman hailed "slum clearance" as a weapon to combat the nation's post-World War II housing shortage. As a 1945 San Francisco Chronicle op-ed stated, "bluntly, nothing can be done to improve housing conditions here until a lot of people clear out."
But urban renewal only improved conditions for some people. In his article "No Room at the Inn: Housing Policy and the Homeless," Todd Swanstrom notes "It is well documented that the urban renewal programs of the 1950s and 1960s tore down more housing than they replaced."Todd Swanstrom, "No Room at the Inn: Housing Policy and the Homeless," 35 Wash. U. J. Urb. & Contemp. L. 081 (1989) Available at: http://openscholarship.wustl.edu/law_urbanlaw/vol35/iss1/
This is because, as Gordon describes it, federal policy was "committed to improving the housing stock without increasing it."Murray Rothbard also noted how governments were demolishing housing units without replacing them. See this video: https://www.youtube.com/watch?time_continue=43&v=ICiqFf1kJ7g. A selection from the documentary "The Incredible Bread Machine: https://www.youtube.com/watch?v=ycGRERrGsMo
Yes, the bulldozed units in the slums were replaced with some units of higher quality. But they were rarely replaced with enough units to replace those that had been torn down.A common redevelopment outcome was one in which some of the displaced households could afford to rent in the new neighborhood. But there was usually a portion of the old tenants who were forced out. Walter Thompson quotes some officials of the time period: "It is true that a number of people there could afford to pay the rents that will be required," said City Planning Director T. J Kent, Jr. at the time. "But the rents will be too high for a large group of residents." ... He added that there was "no pat answer" for accommodating people who were to be displaced. (see: https://hoodline.com/2016/01/how-urban-renewal-destroyed-the-fillmore-in-order-to-save-it)
City planners were happy to show off the shiny new projects they had used government money to redevelop. But unseen were the households who simply could not afford units in the new buildings.
After all, the poor that lived in the slums lived there precisely because it was cheap, low-rent housing. Reformers admitted there were no "pat answers" to explain what would become of the displaced families. But few reformers seemed much troubled by it. Then, as now, it may have been what really mattered to reformers was to be able to claim they were doing something. And besides, living in the slums was obviously a bad thing. But as Swanstrom very pragmatically suggests: "these accommodations [in the slums] may have been offensive by middle class standards, [but] they were nevertheless better than living on the streets."
But many reformers ignored this bit of wisdom and insisted on housing policy built around urban central planning, anti-slum mandates, and redevelopment which favored urban commercial development where residential development once had been.
Meanwhile, federal policies were introduced during the New Deal and in later iterations of expansionist federal social policy which encouraged more spending in the suburbs than in the cities. Federal programs designed to increase suburban single-family homes proliferated with new federal creations like Fannie Mae and new mortgage insurance programs. Federal grants also encouraged construction of new freeways out of the city, and building more suburban infrastructure. The dollars spent on subsidizing the suburbs thus greatly outnumbered those spent on subsidizing construction of new housing in city centers. Combined with anti-slum policies, federal policy and federal spending patterns acted to drain central cities — and their neighborhoods — of capital while demolishing the housing that remained.
Implications for Today By the 1980s, as homelessness became a frequent topic of research, some scholars began to recognize how federal urban renewal policy had laid the groundwork for the rise in homelessness that occurred in that decade. It turned out that the federal government's grand plan of leveling flophouses and residential hotels in the name of "beautifying" cities, mostly just resulted in destroying the only housing the very-low-income population could afford. Deprived of their units in the slums, these people ended up living in tent cities and cardboard boxes instead.
Today, little has changed for those with the lowest incomes. The options once available to them in the pre-1950s world are gone, and were never replaced.
Thanks to the persistence of the Progressive mindset in cities, zoning, "redevelopment" and a centralized control of new construction remains the norm. "Density" is the new "congestion" and the attitude of city planners remains the same. They bemoan the lack of affordable housing while also blocking efforts to build more housing. Meanwhile, they tighten controls on modern-day boarding houses and other private-sector attempts to provide low-cost housing. Planners impose height restrictions and density controls. They create arbitrary minimum sizes for units. In many states and cities, the definition of "blight" remains flexible, empowering governments to further eliminate old housing units at the discretion of city planners.
Moreover, the old urban renewal methods persist in updated forms. Tax Increment Financing (TIF) legislation is geared not toward low-cost housing, but toward new commercial development. Often, that development is built where "unsightly" (but affordable) housing once existed. Its destruction is encouraged by government policy. Federal tax policy and mortgage policy continues to draw capital away from urban rental housing and into suburban single-family housing.
Yet, city centers remain the most practical place for very-low-income housing to be built and sustained. This is because the lowest-income households need to be close to the densest areas that sustain mass transit and access to employment. By destroying the urban ecosystem of very-low-income housing, though, governments have left many of these people few options other than living in cars, alleyways, and sidewalks. This, of course, is far more dangerous than living in a run-down residential hotel with a functioning toilet down the hall, and a locking door on the room.
But even if city governments were to begin allowing the private sector to freely build again, it would likely take decades to produce the housing infrastructure necessary to address the housing needs in city centers. We continue to live with the wreckage of failed urban renewal, and the evidence can be seen in the tent cities and makeshift latrines we now see in public spaces.
When reports regarding COVID-19 illnesses began to surface, media outlets initially downplayed the risks. But they soon followed the World Health Organization’s (WHO) claims that the virus was more serious than the seasonal flu and that a high volume of cases could prove burdensome to healthcare systems, and governments around the globe scrambled to keep the virus from spreading rapidly.
Embracing ineffective lockdowns, world leaders issued stay-at-home directives and ordered many businesses to close their doors.
In America, we watched as some state governors quickly adopted policies that produced arrests, protests, and mass unemployment. In Brazil, under the leadership of Jair Messias Bolsonaro, a former congressman dubbed the “Trump of the Tropics,” state governors followed in American governors’ footsteps, shutting down businesses and violently arresting anyone who dared to serve their customers.
Bolsonaro protested.
In TV appearances and media briefings, the president, who was often condemned for not wearing his face mask properly, repeated that the virus wasn’t that bad.
Many will catch it [coronavirus] whether or not they are careful. That will happen sooner or later,” he told the media. “We must respect it, take personal hygiene seriously, but we can't be neurotic about it, as if it [this crisis] were the end of the world.
There are many governors, in my view, who are taking measures that will harm our economy a lot. Life goes on, we cannot be hysterical.
In an attempt to persuade governors to change course, Bolsonaro’s office launched a campaign entitled Brazil Can’t Stop, but his efforts didn’t go far, as the Brazilian supreme court (the Supreme Federal Court) ordered the campaign to end.
Shortly after, US media called for Bolsonaro’s impeachment.
In Brazil, critics followed suit, with attorneys Thiago Santos Aguar de Padua and Jose Rossini Campos do Couto Correa filing an impeachment request with Congress arguing that the president “[practiced] a crime of responsibility by going against recommendations coming from health authorities and by taking part in crowded demonstrations during the COVID-19 pandemic.”
The attorneys were referring to the several instances in which Bolsonaro was seen coming into close contact with supporters who crowded the entrance of the capital’s presidential palace to ask the leader to let them go back to work.
Some of these encounters were emotional: workers shed tears while telling the president that they couldn’t survive on the BR$600 monthly cash assistance that the government provides, that they didn’t want “government charity” and wanted to “go back to work.”
But it didn’t matter what working-class Brazilians wanted. The president found himself unable to unilaterally reopen the economy.
What he was able to do, however, was prevent government surveillance to track most residents breaking stay-at-home orders.
Preventing Mass Surveillance When discussing different approaches to the pandemic in early March, members of the US Congress would often mention South Korea as an example to be followed.
While some, such as Libertarian Party presidential hopeful Rep. Justin Amash, claimed that the small nation had done it right by not shutting down the economy in the aftermath of the spread of the virus, they would often omit the fact that the Korean nation used mass surveillance tools to identify residents who may have been exposed to the virus. The country also used the same types of programs to push for mandatory testing.
In the state of Sao Paulo, Governor João Doria implemented a surveillance program to ensure that residents were staying home, tracking their movements via cell phone GPS data. When asked to implement the system on the federal level, however, Bolsonaro said no.
In early April, the Brazilian minister of science, technology, innovation, and communication Marcos Pontes said that Bolsonaro had asked him to delay the use of cell phone surveillance to track crowds.
Urging Pontes to wait until the executive had had enough time to evaluate the program, the minister put a hold on implementing the tracking system nationwide.
In spite of what could easily be seen as a stand for privacy rights, members of Brazil’s “classical liberal” groups, many of whom are now in Congress, continued to denounce the president for his “irresponsible” approach to the coronavirus crisis.
WHO Changes Policy, Says Mass Lockdowns Were Never the Goal Bolsonaro found himself in the middle of yet another political debate in mid-April.
After firing Health Minister Luiz Henrique Mandetta, a staunch defender of the lockdown, Bolsonaro locked horns with former justice minister Sergio Moro, who in March had authorized the military police to arrest anyone who went against state stay-at-home orders.
Moro became a household name following the Car Wash operation, which led to the arrest of several politicians involved in a long-term corruption scheme tied to the country’s oil company, Petrobras. He was the judge who authorized the investigation of the corrupt politicians, gaining the trust of the country’s conservative populace.
After Bolsonaro allegedly approached him to discuss a change to the leadership of the Federal Police, eventually firing the head of the FP, Moro resigned.
Although the lockdowns weren’t brought up as a reason for Bolosonaro’s decision to approach Moro, the president became the target of critics who both bemoaned the conservative leader’s approach to the pandemic and his decision to interfere with Moro’s work.
But as this new crisis was brewing, the WHO changed its tone.
In an interview in late April, the WHO’s top emergencies expert Dr. Mike Ryan said that Sweden, the country that never issued stay-at-home orders to the general population, was a “model” for fighting COVID-19.
Instead of lockdowns, Ryan said, the country focused on the elderly and the vulnerable while not letting the economy come to a halt.
“What it has done differently is it has very much relied on its relationship with its citizenry and the ability and willingness of its citizens to implement self-distancing and self-regulate,” Ryan said. “In that sense, they have implemented public policy through that partnership with the population.”
In other words, allowing the Swedish population to self-regulate based on information coming from the government’s health officials is what made the country’s approach so successful.
Whether Ryan admits it or not, this statement goes directly against what WHO advisors claimed in the recent past as they called out for massive government involvement in order to contain the disease.
In an interview in late March, Bruce Aylward, the senior advisor to the WHO director-general, said that governments should keep populations under lockdown, adding that tracking citizens for testing purposes was also desirable.
He went on to praise China, which was then still under lockdown: “And if you look across China, across the 31 provinces, all of which were affected at one point or another, the longest and most difficult, of course, was Wuhan, which remains locked down. It will be nearly 10 weeks by the time they will have lifted there [sic]—all of February, March, and much of April.”
It was precisely this type of claim made by the WHO and its advisors that prompted Bolsonaro critics to attack him for his refusal to defend shutting down the economy.
Now, as Brazil’s National Congress evaluates the coronavirus-related impeachment request, Bolsonaro fights the Supreme Federal Court, which is barring his appointment to head the FP. This gives his critics reason to claim that he is using the coronavirus fight to push for a military takeover despite the fact that he does not have the full support of the military.
Instead, the president’s critics could be taking a closer look at the WHO’s change of heart, using the opportunity to reevaluate Bolsonaro’s approach to the lockdown.
Brazilians Rally against Shutdown Seeing the population’s growing discontent regarding the lockdowns, Governor Doria and Sao Paulo mayor Bruno Covas have recently distanced themselves from impeachment talks, focusing instead on what local and state officials have been doing to fight coronavirus. And during the May Day weekend, Bolsonaro was celebrated by thousands of antilockdown protesters in Brasilia, the country’s capital.
“The destruction of jobs by some governors is irresponsible and unacceptable. We will pay a high price in the future,” the president told the crowd.
Although many have used these protests to claim that military dictatorship apologists are trying to use the COVID-19 lockdown to call for military interference, Bolsonaro has, for the most part, tried to fight against the shutdown by talking to governors directly.
Despite his best efforts, nothing has worked.
Now that working-class Brazilians are losing patience, with some even resorting to violence, Bolsonaro told protesters over the weekend that regardless of where governors and members of the judicial branch want to go with their lockdown orders, he will no longer let them “interfere” with his work.
“We want what’s best for the country. We want true independence of the three branches of power, and not just [an amendment] to the Constitution,” he told the crowd.
“No more interference. We won’t allow any more interference. We have no more patience. We are pushing Brazil forward.”
Adding that he “[prays] to God” that there will be no more pushback from the Supreme Federal Court, he concluded that he won’t simply “demand” but will make sure the constitution is taken seriously.
Unemployment and Hunger, a High Price to Pay It’s always difficult to guess a politician’s motivations, but regardless of what Bolsonaro is telling himself, he does appear motivated to spare the Brazilian economy. And for good reason. As in Mexico, poverty in Brazil is no joke. It’s not a matter of buying a smaller house or wearing off-brand clothes. In the developing world, poverty poses a serious and immediate risk to life and limb.
In America, the stay-at-home orders that largely impacted the healthy, locking scores of working men and women inside their homes, pushed unemployment to a record high.
In developing countries like India, hunger is now widespread. But even as children become the number one victims of the Indian government's utter lack of respect for the basic moral principles rooted in the nature of man (known as natural law), few try to make the case for freedom and personal responsibility before tyranny in times of crisis.
Is Bolsonaro right for trying to stop widespread lockdowns? Was his instinct to try to shield the Brazilian economy from a potential catastrophe while focusing on protecting the vulnerable correct?
The answers may not be as straightforward as we might wish. But what is unquestionably true is that no government, whether local or federal, has a moral right to prevent individuals from exchanging with one another.
People own their bodies and their labor. Restricting their ability to act on their rights is by definition criminal, and the only reason why the coronavirus-fueled shutdown of the economy was never a sound decision.
Despite defending a series of flawed policies, Bolsonaro may be one of the few world leaders to have understood this.
Listen to the Audio Mises Wire version of this article. In Economic Facts and Fallacies (2011), Thomas Sowell argues that housing regulation and zoning laws, not markets, are to blame for the modern scourge of unaffordable housing. Sowell is still right. Government housing regulations have exacerbated construction costs, reduced the elasticity of the housing supply, and worsened the vicious problem of homelessness.
A 2014 NBER (National Bureau of Economi Research) review of the current housing regulation literature confirmed what economists already knew: "regulation appears to raise house prices, reduce construction, reduce the elasticity of the housing supply, and alter urban form." Complying with regulation is not only time consuming, but often requires detailed knowledge of local bylaws and the purchase of expensive permits. Restrictive zoning laws are particularly egregious, frequently and unnecessarily rendering certain areas unusable for housing. However, many seem to be unconvinced of the significance of this problem, preferring to blame rich investors, unsustainable population growth or growing incomes. Wouldn't local regulations be unimportant compared with macroeconomic trends? Such claims are inconsistent with the evidence. A Reserve Bank of Australia working paper found that, "as of 2016, zoning raised detached house prices 73% above marginal costs in Sydney, 69% in Melbourne, 42% in Brisbane and 54% in Perth." We know that regulations push up prices. Furthermore, they are frequently more influential than any demand side factor commonly blamed in the media.
In the 1970s, Californian governments regulated housing markets on a level not previously seen. Unsurprisingly, house prices exploded. This explosion cannot be blamed on population growth: over a ten year period starting in the 1970s, the average Palo Alto house price nearly quadrupled while population growth in that region was close to zero (Sowell 2011). The Las Vegas population almost tripled between 1980 and 2000, yet "real median house prices did not change" (Glaeser, Gyourko, and Saks 2005).
This takeoff cannot be blamed on incomes, either. Dallas has consistently achieved a growth of household incomes roughly 10 percent higher than the US average, while its house prices are generally lower than the US average (O'Toole 2006); the same is true of Houston. In the 1970s, real income in California grew more slowly than the national average, yet the takeoff took place (Sowell 2011).
Nor can this takeoff be blamed on inflation. The Foster City housing project of the 1960s (San Mateo, California), sold houses at prices between $22,000 and $50,000. In 2005, the average Foster City home price exceeded $1 million (Sowell 2011). These price increases dwarf the effects of inflation. In a ranking of America's least affordable housing markets, seventeen were located in California. In a 2018 ranking, California was the third least affordable state in the US. Texas, the second largest economy behind California, was ranked twenty-third.
One need only compare house prices in California with those of Texas to see the lasting scars of so-called smart planning. Over the last twenty years, the Texas population has increased faster than that of California, and real GDP growth has been roughly the same in both states. Yet Californian house prices have grown faster ever year (see figure 2). The story becomes even clearer when we focus on individual cities. Despite being the fourth largest city (by population) in the US, the Houston market is ranked twenty-fourth in the world for affordability among major cities (those with populations greater than 1 million). This remarkable achievement can be largely attributed to the fact that Houston has no zoning laws.
Figure 1
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Source: FRED (see here and here). Figure 2[[{"fid":"90916","view_mode":"default","fields":{"format":"default","alignment":"center","field_file_image_alt_text[und][0][value]":"texas california housing prices new housing affordable housing","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""},"type":"media","field_deltas":{"2":{"format":"default","alignment":"center","field_file_image_alt_text[und][0][value]":"texas california housing prices new housing affordable housing","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""}},"attributes":{"alt":"texas california housing prices new housing affordable housing","class":"media-element file-default media-wysiwyg-align-center","data-delta":"2"}}]]
Source: FRED (see here and here). Texas is not alone. Japan teaches us that population size does not dictate affordability. In the below table, we compare Tokyo with London.
Urban AreaTokyoLondonPopulation Density6,158 per square kilometer (source)5,701 per square kilometer (source)Average Annual Salary (USD)$50,655 (source)$52,000 (source)Monthly Housing Costs (USD)$1,951.5$2,547.8Housing Price World Ranking 16th5th
Note: data on housing costs and price level rankings comes from UBS, Prices and Earnings 2018. Tokyo is the largest city by population in the world, with 37,435,191 people. But when world cities are ranked from highest house prices to lowest, Tokyo is sixteenth. Tokyo housing is more affordable than in Hong Kong, Paris, New York, Los Angeles, Chicago, Sydney, and Zurich. Over the last twenty years, Japanese real residential property prices have declined by roughly 1.40 percent per quarter. Over the same period UK and US real residential property prices have increased by 3.73 and 2.03 percent, respectively (see here). This incredible outcome is a consequence of Japan's dynamic and deregulated housing market. Zoning regulations in Tokyo involve setting limits on nuisance levels rather than specifying how specific land can be used. Almost all Japanese property can be used for mixed developments; even in areas that are zoned as "industrial" there is nothing to stop a developer constructing a housing complex for willing buyers. Unlike other parts of the world where height restrictions are absolute, in Tokyo height restrictions are far more malleable so long as builders accommodate the neighboring properties' rights to sunshine. Compare this with the effects of inflexible height restrictions in Manhattan: during the 1950s, competitive housing markets ensured that "tens of thousands of new units were built…, while prices remained flat" (Glaeser et al. 2005); however, height restrictions introduced in the 1970s meant that, "despite skyrocketing prices, the housing stock has grown less than 10 percent since 1980" (Glaeser et al. 2005). As Sowell (2011) points out, "the proportion of new housing units in buildings 20 stories and higher, which had been increasing in Manhattan from the beginning of the twentieth century until 1970, suddenly reversed and began a decades-long decline."
There were 942,000 housing starts in Japan in 2018. In the UK, there were 194,000. In 2019, average rents in London were "upwards of £2000, while average rents in Tokyo [were] about £1,300." The flexible housing market also means that old homes are being regularly knocked down for new homes to be built, ensuring that Tokyo’s dynamism is sustained.[[{"fid":"90917","view_mode":"default","fields":{"format":"default","alignment":"center","field_file_image_alt_text[und][0][value]":"real residential property price growth affordable housing uk usa japan","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""},"type":"media","field_deltas":{"3":{"format":"default","alignment":"center","field_file_image_alt_text[und][0][value]":"real residential property price growth affordable housing uk usa japan","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""}},"attributes":{"alt":"real residential property price growth affordable housing uk usa japan","class":"media-element file-default media-wysiwyg-align-center","data-delta":"3"}}]]
Source: FRED. In Nigeria regulations and restrictions on land and capital goods for construction had led to a housing deficit of over 17 million houses by 2015. The situation is not very different today. The 1978 Land Use Act stipulates the administration and control of all land in the country. Except land owned by the federal government, the law put all land under the control of the state governors. The governors, each under the advice of a "Land Use and Allocation Committee," decide the use of land. Nigerians can only get access to the land by getting a certificate of occupancy (CO), which is valid for only ninety-nine years, after the governor has decided the use of that land. Housing development is slow, because if the governor has not stipulated what the use of barren land will be, it is practically impossible to get a CO and this disincentives construction. When people, to address their dire housing needs, take the law into their hands and construct homes for themselves, the governors forcefully evict them and destroy their homes.
Also, in Nigeria the importation of bagged cement, an important capital good in the construction of houses, is illegal. Cement is produced locally by a couple of companies with entrenched government connections. Hence "The government and indeed many Nigerians have almost come to accept that paying over the odds for cement is a sacrifice worth making in the name of having cement produced in the country" (Feyi Fawehinmi 2017). And just like any with other commodity, when the prices of cement are high, people will demand less.
The empirical evidence and the economic theory are perfectly consistent on this point: if you restrict how land can be used through strict zoning and planning laws, you will push up production costs and restrict supply, in turn creating housing affordability problems. This problem is not just about the cost of living, but also about inequality and social mobility. We know that most of the growing inequality in developed nations is caused by rising house prices. Inaccessible housing markets restrict job opportunities and entrench systemic inequality among groups that cannot afford to get a foothold. This problem will go away if the politicians and bureaucrats stop telling people how they can use their land. The empirical evidence and the current literature tell us that deregulated housing markets create affordable housing. We know how to solve this problem. We have for a while.
That’s a question USA Today posed to three “policy experts on the left and the right” in this recent article. The responses, while unsurprising, were nevertheless disappointing.
For libertarians, economic inequality itself is not problematic, as long as it is in the context of an unfettered market economy free of government privileges and interference.
Of course, that’s not what we have. But instead of advocating for a more free economy to address inequality, the “experts” consulted by USA Today advocate for more state interference that would likely make inequality worse while ignoring perhaps the largest source of inequality, the Federal Reserve.
First up is Scott Winship of the American Enterprise Institute, who focuses on income mobility. Winship points out that if every child had equal economic opportunity, then we would see an equal percentage among races of children remaining in the bottom fifth of income when they become adults.
Winship notes that roughly 30 percent of white children remain in the bottom fifth in adulthood, while the figure for black children exceeds 50 percent.
Absent from Winship’s observation, however, is the recognition of why this might be the case.
According to Pew Research, 30 percent of single mothers and their families are living in poverty compared to 8 percent of married couples and families. In other words, children are nearly four times as likely to be living in poverty in a single mother household compared to a household headed by a married couple. Meanwhile, 58 percent of black children are living with an unmarried parent, compared to 24 percent of white children and just 13 percent of Asian children.
Moreover, the welfare state has facilitated a dramatic rise in single parent homes. Nationally, since LBJ’s Great Society ratcheted up government welfare programs in the mid-1960s, the rate of unmarried births has tripled.
Single parenthood fueled by the welfare state is an outsized source of inequality, but the welfare state escapes any blame by the “expert” Winship.
To his credit, Winship in his recommendations mentions in passing that “shoring up marriage where it has become an anomaly” would help reduce inequality, but he fails to target the welfare state as the major culprit.
His other recommendations include the vague notion of “expanding access to high opportunity neighborhoods,” perhaps a nod to government programs to inject affordable housing projects into middle-class suburbs, along with increased government spending on early childhood programs. Encouraging more state involvement in child-rearing while ignoring the glaring problem of single parenthood caused in large part by the welfare state sounds like a recipe to exacerbate inequality, not combat it.
Next up is American Compass research director Wells King, who blames growing economic inequality on the fact that the “labor movement has lost power.”
King overlooks basic economic analysis while giving labor unions undeserving credit for boosting worker wages on a broad scale. As Henry Hazlitt wrote, “the blunt truth is that labor unions cannot raise the real wages of all workers.”
As Hazlitt explained, “whenever the unions gain higher wage rates for their own members than free competition would have brought, they can do this only by increasing unemployment” in that industry, because the above market wage rates decrease employer demand.
As a result, more workers are forced to compete for other nonunionized jobs, and the increased supply of workers in other industries drives down those wages. Therefore, Hazlitt concludes, “All union ‘gains’ (i.e., wage rates above what a competitive free market would have brought) are at the expense of lower wages than otherwise for at least some if not most nonunion workers. The unions cannot raise the average level of real wages; they can at best distort it.”
As Hazlitt shows, King’s calls for a more robust union movement as a means to reduce economic inequality are ill founded.
Moreover, King’s blinkered focus on unions as a force for growing worker wages blinds him to a far more potent force driving inequality.
“The steady erosion of unions over the past 50 years has been responsible” for growing inequality, King insists while noting a correlation between declining union membership and growing wealth inequality during that time.
But what else happened fifty years ago that might have influenced wealth inequality?
Of course it was Nixon’s severing the final ties of the dollar to gold in 1971, which has enabled the Federal Reserve to create fiat money completely unchecked. As demonstrated in multiple charts at the website WTFhappenedin1971, there is a clear divergence in incomes between high and low earners beginning sharply in 1971.
According to this 2018 mises.org article, the base (M1) money supply ballooned by an incredible seventeen times, with more than $3.2 trillion being created from 1971 to 2018. And it’s only getting worse, with another 33 percent increase in the first seven months of 2020 alone.
Why does Fed money printing increase economic inequality?
In short, the rich receive a significant share of their income from investments, while the middle class primarily rely on their income from labor and the poor a combination of labor income and government welfare payments.
When the Fed creates new fiat money out of thin air, it isn’t distributed evenly throughout the economy. Instead, it is inserted at specific points, typically via credit to business investors. As the Fed inflates a bubble, speculation with the new money also increases—which inflates the stock market, benefiting the investor class.
Meanwhile, the fiat money creation causes price inflation that permeates over time throughout the economy. Some of the more highly skilled in the middle class may receive salary increases to keep up with the inflation while many of the lower-skilled middle class will struggle to keep up with rising prices. The poor, who lack the bargaining power to raise their wages to keep pace with inflation, and otherwise rely on relatively fixed incomes, fall further behind.
The failure of King to recognize the Fed’s major role in growing inequality undercuts any credibility his recommendations should be given.
Last is Economic Policy Institute research director Josh Bevins, who incredibly calls for more money printing to help reduce economic inequality.
“Policymakers should re-target genuine full employment (the Fed is making good steps in this direction),” Bevins declares. How this supposed “expert” believes more asset bubble–inflating money creation will reduce economic inequality goes without explanation.
Bevins further calls for a “substantially increased” federal minimum wage, without acknowledging that pricing low-skilled workers out of the workforce and eliminating the first rung on their career ladders will reduce the ability of low-income people to increase their earning power and narrow economic inequality.
More generous unemployment benefits is another of Bevins’s recommendations. But increasing the incentive to not work will result in more people, especially those already on the margins of employment, staying out of the workforce for longer periods of time—a great recipe to stymie the steady career track needed to climb out of low-income status.
How disappointing that a national publication like USA Today can do no better than “experts” who recommend government interventions that would end up increasing rather than shrinking economic inequality.
First published by the Libertarian Institute.
The World Economic Forum (WEF) was founded fifty years ago. It has gained more and more prominence over the decades and has become one of the leading platforms of futuristic thinking and planning. As a meeting place of the global elite, the WEF brings together the leaders in business and politics along with a few selected intellectuals. The main thrust of the forum is global control. Free markets and individual choice do not stand as the top values, but state interventionism and collectivism. Individual liberty and private property are to disappear from this planet by 2030 according to the projections and scenarios coming from the World Economic Forum.
Eight Predictions Individual liberty is at risk again. What may lie ahead was projected in November 2016 when the WEF published “8 Predictions for the World in 2030.” According to the WEF’s scenario, the world will become quite a different place from now because how people work and live will undergo a profound change. The scenario for the world in 2030 is more than just a forecast. It is a plan whose implementation has accelerated drastically since with the announcement of a pandemic and the consequent lockdowns.
According to the projections of the WEF’s “Global Future Councils,” private property and privacy will be abolished during the next decade. The coming expropriation would go further than even the communist demand to abolish the property of production goods but leave space for private possessions. The WEF projection says that consumer goods, too, would be no longer private property.
If the WEF projection should come true, people would have to rent and borrow their necessities from the state, which would be the sole proprietor of all goods. The supply of goods would be rationed in line with a social credit points system. Shopping in the traditional sense would disappear along with the private purchases of goods. Every personal move would be tracked electronically, and all production would be subject to the requirements of clean energy and a sustainable environment.
In order to attain “sustainable agriculture,” the food supply will be mainly vegetarian. In the new totalitarian service economy, the government will provide basic accommodation, food, and transport, while the rest must be lent from the state. The use of natural resources will be brought down to its minimum. In cooperation with the few key countries, a global agency would set the price of CO2 emissions at an extremely high level to disincentivize its use.
In a promotional video, the World Economic Forum summarizes the eight predictions in the following statements:
People will own nothing. Goods are either free of charge or must be lent from the state.
The United States will no longer be the leading superpower, but a handful of countries will dominate.
Organs will not be transplanted but printed.
Meat consumption will be minimized.
Massive displacement of people will take place with billions of refugees.
To limit the emission of carbon dioxide, a global price will be set at an exorbitant level.
People can prepare to go to Mars and start a journey to find alien life.
Western values will be tested to the breaking point..
Beyond Privacy and Property In a publication for the World Economic Forum, the Danish ecoactivist Ida Auken, who had served as her country’s minister of the environment from 2011 to 2014 and still is a member of the Danish Parliament (the Folketing), has elaborated a scenario of a world without privacy or property. In “Welcome to 2030,” she envisions a world where “I own nothing, have no privacy, and life has never been better.” By 2030, so says her scenario, shopping and owning have become obsolete, because everything that once was a product is now a service.
In this idyllic new world of hers, people have free access to transportation, accommodation, food, “and all the things we need in our daily lives.” As these things will become free of charge, “it ended up not making sense for us to own much.” There would be no private ownership in houses nor would anyone pay rent, “because someone else is using our free space whenever we do not need it.” A person’s living room, for example, will be used for business meetings when one is absent. Concerns like “lifestyle diseases, climate change, the refugee crisis, environmental degradation, completely congested cities, water pollution, air pollution, social unrest and unemployment” are things of the past. The author predicts that people will be happy to enjoy such a good life that is so much better “than the path we were on, where it became so clear that we could not continue with the same model of growth.”
Ecological Paradise In her 2019 contribution to the Annual Meeting of the Global Future Councils of the World Economic Forum, Ida Auken foretells how the world may look in the future “if we win the war on climate change.” By 2030, when CO2 emissions will be greatly reduced, people will live in a world where meat on the dinner plate “will be a rare sight” while water and the air will be much cleaner than today. Because of the shift from buying goods to using services, the need to have money will vanish, because people will spend less and less on goods. Work time will shrink and leisure time will grow.
For the future, Auken envisions a city where electric cars have substituted conventional combustion vehicles. Most of the roads and parking spaces will have become green parks and walking zones for pedestrians. By 2030, agriculture will offer mainly plant-based alternatives to the food supply instead of meat and dairy products. The use of land to produce animal feed will greatly diminish and nature will be spreading across the globe again.
Fabricating Social Consent How can people be brought to accept such a system? The bait to entice the masses is the assurances of comprehensive healthcare and a guaranteed basic income. The promoters of the Great Reset promise a world without diseases. Due to biotechnologically produced organs and individualized genetics-based medical treatments, a drastically increased life expectancy and even immortality are said to be possible. Artificial intelligence will eradicate death and eliminate disease and mortality. The race is on among biotechnological companies to find the key to eternal life.
Along with the promise of turning any ordinary person into a godlike superman, the promise of a “universal basic income” is highly attractive, particularly to those who will no longer find a job in the new digital economy. Obtaining a basic income without having to go through the treadmill and disgrace of applying for social assistance is used as a bait to get the support of the poor.
To make it economically viable, the guarantee of a basic income would require the leveling of wage differences. The technical procedures of the money transfer from the state will be used to promote the cashless society. With the digitization of all monetary transactions, each individual purchase will be registered. As a consequence, the governmental authorities would have unrestricted access to supervise in detail how individual persons spend their money. A universal basic income in a cashless society would provide the conditions to impose a social credit system and deliver the mechanism to sanction undesirable behavior and identify the superfluous and unwanted.
Who Will Be the Rulers? The World Economic Forum is silent about the question of who will rule in this new world.
There is no reason to expect that the new power holders would be benevolent. Yet even if the top decision-makers of the new world government were not mean but just technocrats, what reason would an administrative technocracy have to go on with the undesirables? What sense does it make for a technocratic elite to turn the common man into a superman? Why share the benefits of artificial intelligence with the masses and not keep the wealth for the chosen few?
Not being swayed away by the utopian promises, a sober assessment of the plans must come to the conclusion that in this new world, there would be no place for the average person and that they would be put away along with the “unemployable,” “feeble minded,” and “ill bred.” Behind the preaching of the progressive gospel of social justice by the promoters of the Great Reset and the establishment of a new world order lurks the sinister project of eugenics, which as a technique is now called “genetic engineering” and as a movement is named “transhumanism,” a term coined by Julian Huxley, the first director of the UNESCO.
The promoters of the project keep silent about who will be the rulers in this new world. The dystopian and collectivist nature of these projections and plans is the result of the rejection of free capitalism. Establishing a better world through a dictatorship is a contradiction in terms. Not less but more economic prosperity is the answer to the current problems. Therefore, we need more free markets and less state planning. The world is getting greener and a fall in the growth rate of the world population is already underway. These trends are the natural consequence of wealth creation through free markets.
Conclusion The World Economic Forum and its related institutions in combination with a handful of governments and a few high-tech companies want to lead the world into a new era without property or privacy. Values like individualism, liberty, and the pursuit of happiness are at stake, to be repudiated in favor of collectivism and the imposition of a “common good” that is defined by the self-proclaimed elite of technocrats. What is sold to the public as the promise of equality and ecological sustainability is in fact a brutal assault on human dignity and liberty. Instead of using the new technologies as an instrument of betterment, the Great Reset seeks to use the technological possibilities as a tool of enslavement. In this new world order, the state is the single owner of everything. It is left to our imagination to figure out who will program the algorithms that manage the distribution of the goods and services.
Listen to the Audio Mises Wire version of this article.
As I write, the Democratic Congress is contemplating various measures designed to alleviate poverty levels in the United States. They include: the doubling of the minimum wage; the expansion of child credits. Let’s review both.
The Minimum Wage Hike Congress intends to raise the federal minimum wage from $7.25 to $15. This makes various assumptions: first, that minimum wage workers themselves are indeed poor. This is wrong: they come from families with a median household income of $66,000; for, their median age is twenty-four years old, and 60 percent are still attending school. Secondly, this policy makes the assumption that it will have no statistically significant impact on unemployment. This is also misguided. The City of Seattle enacted a $13 minimum wage in 2016, resulting in a fall of 9 percent in hours worked among these jobs. The job turnover rate declined by 8 percent, and the city’s less experienced minimum wage workers saw no net increase in payment.
In fact, a separate study found that Seattle’s policy reduced low-wage employment by 6–7 percent, and due to the reduction in employment, workers in this category actually saw a net decline in pay. The third assumption made by this minimum wage hike is that workers will indeed see an increase in inflation-adjusted income. A crucial lesson of economics is that living standards are not determined just by nominal wages, but also the amount which such a wage can consume. Literature suggests that raising the minimum will correspond with an increase in cost of living, due to businesses offsetting higher labor costs, and therefore harm precisely those whom the policy intends to help—low-wage workers. For instance, the average childcare worker in the United States earns $11 an hour—below the threshold Congress intends to set. Therefore, higher labor costs will simply mean an increase in the cost of childcare.
One estimate found that this policy would cause, on average, childcare costs to rise by 21 percent in the United States—that’s an increase of $3,700. Some areas would inevitably be hit harder than others: for instance, the state of Mississippi would see a whopping 43 percent increase in costs. Another essential component of the cost of living is food costs. Many grocery workers work below $15 in the United States: and higher labor costs will simply mean higher inflation in the price of food, which will clearly affect low-wage workers more than high-wage ones. In fact, one study conducted by the University of Zurich found that all the income gains made by workers who had enjoyed a minimum wage increase were simply offset by higher grocery prices. There is more general evidence that raising the minimum wage raises the rate of inflation, therefore negatively impacting those very workers. A study from Canada found that minimum wage hikes can boost the CPI by at least 0.1 percent. Whilst this might not seem statistically significant, the study specified that this small increase caused interest rates to rise, thereby having negative effects on employment. Moreover, an American study (pp.19) estimated that a one third decline in the minimum wage between 1979 and 1995 lowered the CPI by 1 percent (which is of statistical significance).
Raising the minimum wage will harm precisely those it intends to help through higher unemployment and cost of living.
Expanding the Welfare State Some economists have rosy predictions about Congress’s plan to expand child credits on poverty levels. That being said, in the 1960s, President Lyndon Johnson hoped to end poverty and racial injustice as he initiated the War on Poverty programs. $20 trillion dollars later, the American poverty rate has bounced between 12 percent and 15 percent since those programs began.
A law of the Welfare state can be said to be this: increases in public income transfers will simply be offset by reductions in private earnings. The famous Seattle-Denver Income Maintenance Experiment (SIME/DIME) found that a $1,000 increase in welfare payments is offset by a $660 reduction in private earnings. Thus, low-income families experience only a meagre increase in their standard of living, and are subject to dependency on state welfare spending.
On top of that, welfare spending increases levels of single parenthood. This was a concern early on when Johnson’s welfare programs were initiated, and it was confirmed by a 1993 study that the welfare state was indeed responsible for the rise in single parenthood. The study postulated that a 50 percent increase in welfare spending yields a 43 percent increase in the levels of single parenthood.
I’ve argued in the past that single parenthood and a lack of full-time work are fundamental contributing factors to poverty in the United States, both of which the welfare state reinforces (in fact, the economists Isabelle Sawhill and Ron Haskin famously predicted that if single parenthood were eradicated and full-time work were universal, among other factors, poverty in the United States could be reduced by 70 percent).
Furthermore, the welfare state may negatively impact social mobility. According to research conducted by the economist Raj Chetty, there is a powerful negative correlation between the prevalence of single parenthood across the OECD and the actual levels of upward child mobility in each of those countries. In fact, there even seems to be a connection between the prevalence of single parenthood amongst the US states and poverty levels/social mobility.
Evidence strongly suggests that the welfare state does not alleviate poverty in the United States, and therefore that these poverty projections to support Congress’s proposals are overblown. A groundbreaking study postulated a Laffer curve–like relationship between poverty and welfare spending (where spending will alleviate poverty to an extent, but beyond a certain point will in fact increase poverty). The study argued that public overreach was responsible for the poverty rate being 50 percent higher than without that extra assistance (due to the impoverishing effect of dependency, single parenthood and work disincentives). This statistic ought to worry Congress, and make them think twice about these welfare proposals.
Conclusion The two policies which are on Congress’s books will not, and never have, succeeded in truly benefitting low-income Americans. To accomplish this aim, they should in fact focus on welfare reform, lowering cost of living through deregulating commodities like housing, energy and childcare, removing labor regulations which exclude poor, inexperienced workers from employment, and thinking twice about inflating the money supply during recessions, which erodes the paychecks of low-income earners.
Venezuela's future is still unclear, but the challenge for the Venezuelan people lies is demanding not only a political but also an economic change. This country, once the richest of South America, is paying for the socialist policies and populism that politicians have implemented to enslave society in recent decades. In my home country, politicians and their pundits have applied those fancy promises that Americans are hearing now: “free education,” “free healthcare,” and more. In brief, Venezuela has tried democratic-socialism and other even-more-drastic types of socialism such as “Socialism of XXI Century.” Needless to say, the experiment has failed.
The answer lies in adopting true freedom for Venezuelans, but few alternatives exist for ordinary voters and citizens.
For example, the most “popular” political alternative to the Chavista regime has the same ideological root. Interim President Juan Guaidó, his comrades, and “economic counselors” want to return to the old democratic-socialism that opened the door to Hugo Chávez. Those politicians allegedly on the Right wing promote few real and radical free-market reforms. They just self-proclaim as "pro-free-market" because the majority of Venezuelans want to hear that. But their actual proposals say otherwise.
Guaidó and his team promote a plan called (in English) the “Morning After.” In Spanish it is marketed as “Plan País.” In a nutshell, it is a bunch of old-fashioned socialist economic policies and “strategies” to solve the crisis. The core of their plan is to promote a “public debt expansion” and an “exponential increment of governmental expenditures.” This plan maintains the state's fiscal dependence on oil revenues, although this dependence remains among one of the gravest dangers to a real and sustainable democracy. Dependence on oil means the state must maintain state ownership and control of the commanding heights of the economy — such as the energy sector. Current plans also mean the state will continue granting a monetary monopoly to politicians and their counselors, thus enabling them to endlessly print out new and fresh money. In brief, those pundits and politicians will maintain the oversized state and do not apply the reforms that Venezuela really needs .
But even if planned and implemented by a new and different group of politicians, socialism still won't work.
After all, when Chávez himself introduced his own reforms, he was supposedly a new visionary politician with a new way of doing things. But in practice, when Chávez won the first election in 1998, his policies and exponential increment of state interventionism just worsened the situation. Now, twenty years later, Venezuelans continue to suffer from a socialist cocktail of corruption, insecurity, shortages of basic goods and medicines, hyperinflation, exchange controls, and barriers to international trade. Corrupt government institutions — including the military and agencies designed to combat terrorism and drug trafficking — have condemned the country to growing humanitarian crises.
Nevertheless, Venezuela had high rates of corruption and insecurity before Chávez. In the decades leading up to the current crisis, the government applied price controls to some goods, and exchange controls had been a common policy from 1959. Protectionist policies were commonplace, and applied to protect the regimes' cronies.
Recently, Guaidó’s comrades have been involved in corruption with managing the humanitarian aid in Cúcuta. His political allies have squandered the collected funds on parties, sex-workers, and in lining their own pockets. Others have become caught up with with corruption in cases as the Odebrecht bribery scheme, the Derwick Associates scandal, and the Gorrín money-laundering case. Worst of all, many of the new reformers claim to be for a new and improved “democratic-chavismo” or “good-socialism.”
Radical free market reform is the only way.
If true reform succeeds, it would not be the first time that a country suffering from the late stages of socialism overcomes the crisis through true free market reforms. Georgia, Singapore, and New Zealand are all cases of regimes that adopted major pro-market reforms in the face of serious economic crisis. The Singapore case is an excellent example that Venezuelans should analyze because our country is almost at the same level of corruption and social-political destruction experienced by that country in the 60’s. Indisputably, Venezuela needs to get rid of Maduro and his narco-regime, but it must also solve the humanitarian, economic, social and political crisis by stabilizing the economy, eradicating corruption, building new and strong institutions, and eliminating trade barriers. Opening the road to a long-run prosperity will not be possible with a plan like the one Guaidó promotes. Venezuelans are naïve if they believe again in promises and plans to “apply correctly” the failed oil-funded welfare state, or “good-socialism.” They must understand that there is no other path to achieve long-run prosperity and liberty than through true market freedom. Otherwise, in the near future, Venezuelans will face just another form of “neo-chavismo.”
Listen to the Audio Mises Wire version of this article. Venezuela's infamous Hugo Chavez, the UK's Jeremy Corbyn, the US's Bernie Sanders all proclaim their unwavering pledge to help the "poor" by increasing government intervention to raise their living conditions and to fight the injustices of inequality and capitalism. According to their message, poor people are both pure and perpetually helpless, the condemned victims of a cruel and rotten system that anchors them in permanent disadvantage, a cruel fate from which only the wise [name your favorite politician] can rescue them.
Of course, you could mostly explain this narrative by attributing it to mere electoral pragmatism. The tale of the unfortunate and noble victim, oppressed by the evil capitalist, has undeniable benefits for the politician who disguises himself as the courageous knight in shining armor who will challenge the villainous rich guys to rescue the damsel in distress and relieve her suffering. However, if this whole narrative is just a pose, then it is a rather heavy character mask to be wearing around all day, throughout the long years of a political career. And that's in a profession where everyone, from the open political rivals to the supposedly allied figures within one's own party, is always ready to attack you at the first sign of weakness.
So, there has to be something more. Just maybe they worry about the poor. Just not enough as to actually want them to improve and rise beyond poverty. Think of people like Sanders or Chavez; they display what appears to be empathic and genuine interest for the less fortunate. They don't sound like those phony bureaucrats that read from a script. When Joe Biden says he cares for the poor, you know it's fake. When Sanders says it, well, it's not that easy to simply discard the guy.
Something similar is going on in Mexico. Our current president, López Obrador, is that kind of politician. When he says he cares for the poor, he truly makes a connection, which is why he won the 2018 elections with the largest share of votes (53 percent) since 1982. He flies in commercial airplanes and never sits in first class, stops to eat at cheap diners on the road, and wages an almost daily verbal war against the "fifís" (slang for affluent and refined people), whom he identifies as the primary enemies of his regime.
However, empathy is no guarantee, because feeling the suffering of someone else and helping them are two very different things. You can pen a thousand speeches and swear a thousand oaths, but if your plan is based on centralization and government intervention, that empathy becomes hollow. In a matter of nineteen months, López Obrador has significantly increased the power of the presidency, taking almost complete control of the legislative and the judiciary; paralyzed the modernization of the energy industry; launched three major infrastructure projects with near-zero technical support (an airport, a refinery, and a train that will cross the jungle); canceled Mexico's City brand new airport, which was more than halfway through construction; and centralized the public healthcare, all the while weakening the states and the system of checks and balances within the federal government.
He's also planning to disappear dozens of autonomous entities, not because he hates bureaucracy, but because he doesn't like to share power. Meanwhile, the country has been in a recession since 2019, when the rest of the world was still growing. By breeding uncertainty and eating away the nation's emergency funds, Obrador essentially set the economy on the path toward the worst crisis in decades, and that was before the COVID-19 pandemic. And the poor will be the most harmed.
But he cared about the poor, right?
Well, as I said before, caring and improving are two different things. Mostly Obrador speaks about getting people out of poverty, but sometimes the real agenda creeps to the surface. For example, on his daily press conference of May 11, he said:
We need to seek austerity….if we already have shoes, why more? If you already have the indispensable clothes, [keep] only that. If you can have a modest vehicle for your commutes, [then] why the luxury? "If we already have shoes, why more?" This quote might fit well in a preacher's Sunday service, but when you analyze it in the context of what's going on in Mexico, you come to a much darker realization: poverty is not a byproduct of a failed government, but an aspiration, a feature instead of a bug. Why? Because the endgame of Obrador's cohort is complete control of Mexican society, and for that to happen, poor people will have to remain poor. Yeidckol Polvensky, one of his closest associates, actually said something of the sort on a national TV interview a couple of years ago. I quote: "The problem that we'd have to understand [is that]…when you get people out of poverty, and they become middle class…they forget where they came from and who got them out of there."
There you have it. They care about the poor. They feel their pain. But deep down, they don't want those low-income families to escape poverty. They may look, even be sympathetic and understanding, but not enough to relinquish control. So, for the savior of the poor to stay in power, the poor will have to remain so, and he'll get away with it because his concern about the poor seems genuine enough to make people support him.
Seventy-six years ago, Hayek spoke about how when society takes the road to serfdom the worst rise to the top, and he was right. Socialist ideas and parties endure, because they breed a special kind of politician, like Lopez Obrador, who can sincerely care about the people and just as genuinely will ruin them even more.
Listen to the Audio Mises Wire version of this article.
Income inequality is today perceived by many as the root cause of poverty all around the world. Many governments have declared fighting income inequality to be a priority. Of course, too much economic inequality could potentially lead to social upheaval, causing criminality, social resentment, and cultural backwardness. However, none of this shows that economic inequality causes poverty, or that markets cause economic inequality.
The truth is that there are two kinds of income inequality. There is income inequality that is created by the private sector and which is a characteristic of developed economies. This kind of income inequality is a positive and healthy inequality, because it is based on the two fundamental elements that create economic growth, the rule of law and private property. But income inequality also results from corrupt regimes that extract wealth from the population and hoard it within the government class. The difference is that the first kind of inequality goes hand in hand with wealthy countries. The second kind does nothing to lessen poverty.
Development and Inequality The United States, the United Kingdom, Canada, the Scandinavian countries, and Japan, just to name a few, are examples of developed countries. Yet each of these countries has a considerable degree of income inequality. Interestingly, we can see similar dichotomies in Africa as well.
According to the United Nations Development Programme, South Africa is the most unequal country in Africa and yet it is the wealthiest country in the continent as well. Indeed, South Africa, Botswana, and Namibia are the most unequal countries in Africa, with a Gini coefficient higher than 0.60: 0.65 for South Africa, 0.62 for Namibia, and 0.62 for Botswana. But these countries are the richest and least conflict-prone in Africa. If income inequality is such a predicament, then how come are these countries the wealthiest? These three countries also have in common a higher index of property rights and a higher index of the rule of law. These characteristics are more established in these countries than in Africa overall.
Since people in these areas have relatively well-established legal property rights, they can create capital and increase their labor productivity. As a matter of fact, income inequality naturally and logically expands to a considerable degree in societies that value the rule of law and private property, because when the government is restrained from intervening in the economy, individuals maximize their economic output, since they have the freedom to decide how they want to manage their own resources. We cannot expect individuals to have the same economic outcomes if they manage their resources differently. The economic productivity of a society is to some extent based on how resources are managed. If an individual manages his resources in an efficient way that generates him a substantial profit, his income will be higher than that of one who did not manage his resources adequately.
Inequality in Poor Countries Income inequality can also grow in a society where there is no rule of law, where access to private property is significantly limited, and where resources are mismanaged. This has been the case of the Central African Republic. The Central African Republic has one of the lowest human development indexes in Africa, because its degree of income inequality is preventing its economy from flourishing. The lack of rule of law and an effective administration of justice impedes access to private property that is legally and physically secure. The high degree of corruption that reigns in the Central African Republic disincentivizes the layman from creating wealth and improving his living standard as well as that of his fellow men. As a consequence of this ongoing corruption, income inequality has greatly expanded poverty in the Central African Republic. As a matter of fact, the poverty rate is at a staggering 71 percent, which means that more than two-thirds of Central Africans live in absolute poverty. These indicators show that in fact income inequality in the Central African Republic is not caused by the private sector, but by the corruption that is ruling their government. The members of the Central African government are richer than two-thirds of the population. As we can observe in figure 1, of the four major unequal countries in Africa, the Central African Republic has the lowest income per capita. The Central African Republic has an average income per capita of $458.5, South Africa of $6,561.86, Botswana of $7,494.295, and Namibia has an average per capita income of $5,294.517.
Figure 1
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Source: World Bank, author’s computation. There are two kinds of income inequality. South Africa, Botswana, and Namibia reflect the positive income inequality that a society creates as it innovates and develops. Negative income inequality is created by the public sector. It relies on corruption and the concept of rent seeking. In countries like the Central African Republic, where income inequality is created by the public sector through a lack of justice and an absence of private property, those who work for the government become much wealthier than the rest of the population. And this kind of income inequality generates overall a national decline. This has been exactly the case for the Central African Republic. Income inequality is not inherently a product of injustice. Everything depends on the conditions under which it takes place.
When we think of analyzing economic organizations, we generally think of firms and corporations.
But there is another organization that is just as critical to economic development: the extended family. Indeed, the advantages offered by this institution are numerous and include risk sharing, mutual aid, human capital building, social capital building, and resource complementarity and coordination.
Risk Sharing and Mutual Aid One of the most important roles of the extended family is to act as a risk-sharing organization. Life is unpredictable. In a nuclear family separated from the extended family, the parents only have one another to rely upon. A single accident, sudden illness, job loss, etc. reduces half of the productive capacity of this unit and can spell disaster for both spouses and their dependent children.
This is where grandparents, uncles, aunts, and even family friends and close neighbors serve a crucial societal function. The members of this large group can chip in when things are going well for them to help their family members who are going through hard times.
And those who contribute know that if one day it’s their turn to go through a rough patch, the rest of the extended family, with its large collective pool of resources, will be there to get them through it, too. This works like and is a supplement to insurance purchased on the market, except that in the extended family there’s an affectionate thumb on the actuary’s scale.
Moving from a small group like the nuclear family to a larger group like the extended family protects against risk, because while it only takes one misfortune for half of a nuclear family to be debilitated, it would be an unlikely coincidence for half of a thirty-person extended family to simultaneously be stricken by misfortunes.
The mutual-aid capacity of the extended family doesn’t just apply to extraordinary cases such as sudden illness, unemployment, or death, but also to everyday matters such as taking care of the very young and the very old members of the family. We see this, for example, in the familiar case of grandparents caring for and instructing their grandchildren when the parents are at work or running errands.
The extended family is like a company that provides health insurance, unemployment insurance, life insurance, childcare, and eldercare all in one and in which everyone on the board of directors loves you.
Human and Social Capital The benefits hardly stop there. The extended family is also an engine of human and social capital, that is to say skills and connections that boost the career opportunities of its members.
Imagine a young man, Smith, who in addition to his parents has a grandfather who runs a vineyard, another grandfather who’s a carpenter, an uncle who owns a mechanic shop, another uncle who’s a lawyer, an aunt who’s a nurse, and older cousins with their own occupations and businesses.
To an outsider with no such relatives, each one of these occupational or entrepreneurial paths is to varying extents a black box. Is this the right path for me? What skills do I need? How do I get started? Who do I need to talk to? And so on.
But for Smith, each of his relatives can provide an apprenticeship opportunity and be a fountain of insider knowledge and connections. The extended family members in question can offer advice, describe what the occupation is like, take him in as an intern and teach him the craft, recommend him for job openings, or hire him themselves. All of this can save Smith a world of time, money, and anxiety and missteps.
According to Julia Fisher, the director of education research at the Clayton Christensen Institute, “Research shows that 70% of all jobs are not published publicly on jobs sites and as much as 80% of jobs are filled through personal and professional connections.” This shouldn’t come as much of a surprise. Parents pay large sums of money for their children to make the social connections provided by elite universities, for example.
Having a devoted extended family presents many of the advantages of a vocational school, country club, or recruitment agency.
Complementarity of Resources In a prior article I discussed how specialization and the division of labor make the family a powerful economic unit. Jörg Guido Hülsmann provides an insight about resource complementarity within the family that extends this analysis:
The generations are also different; they also complement each other. Young people typically have a large work capacity and creativity, but less experience and money. The cooperation between the generations of a family is also favored by trust and affection that has grown over many years, which still has to be built up in relation to people who are not family members.
The young and the old tend to have complementary resources within the family: energy and money, respectively. There may be plenty of people in the world ready to offer money to finance investments, and there may be plenty of people in the world ready to execute business plans once they have the money for it, but solving the coordination problem of bringing together these groups of people and fostering enough trust between them to breathe life into these potential investments is a herculean task. It’s part of the reason why there’s a multitrillion-dollar global banking industry.
Within extended families, the fact that the young and the old develop affection toward, trust in, and knowledge of one another helps solve this resource coordination problem. Consequently, investment ideas become actual investments.
Conclusion These benefits can’t be taken for granted, however. Merely having biological grandparents, aunts, uncles, cousins, etc. is not the same as being a part of a functioning extended family if this group of people is scattered across different states, or doesn’t labor to maintain warm relations and fulfill their reciprocal obligations toward one another. That’s up to us.
One of the popular objections to the GOP proposals to reform health insurance markets is that the Affordable Care Act (aka “ObamaCare”) saved thousands of lives per year, and hence that tinkering with ObamaCare will literally kill lots of people. For example, Hillary Clinton tweeted out:
Now to be sure, even if the claim were true, it still wouldn’t follow that coercive redistribution of wealth was morally justified. However, as happens so often in political controversies, libertarians don’t have to choose between property rights and preventing widespread suffering. Believe it or not, the data suggest that if anything, ObamaCare actually caused more Americans to die.
None of what I write in this piece should be construed as an endorsement of the GOP bills. But the claim that they would “kill lots of people” is not valid.
Oren Cass’s Amazing TakedownThe researcher who alerted me to these awkward facts was the Manhattan Institute’s Oren Cass. Cass makes three important points in his recent study:
1. The various estimates of the alleged lives saved under ObamaCare were not based on actual mortality data. Rather, these pro-ObamaCare studies relied on previous episodes (such as the implementation of “RomneyCare” in Massachusetts) where the expansion of insurance coverage went hand-in-hand with improved health outcomes. Then, taking this correlation as a “fact,” the pro-ObamaCare researchers multiplied by the expansion of insurance under ObamaCare and came up with an estimate of how many Americans’ lives were saved.
Yet as Cass points out, this procedure is flawed. What the literature actually shows is that expansion of private health insurance coverage contributes to improved health outcomes. But under ObamaCare, the amount of private coverage went down relative to what we would have expected in the absence of the legislation. What really drove the increase in insurance coverage under ObamaCare was the expansion of Medicaid. And here, it is much less obvious that this is a boon for health outcomes, as the now infamous Oregon experiment shows.
Looking at the Aggregate Data#2. Now that we’ve undercut the foundations of the pro-ObamaCare figures, we can turn to the actual mortality data from the U.S. After all, as Cass says, if ObamaCare really has been avoiding tens of thousands of deaths per year, we should see that in the data.
And yet, we see the opposite. Although the ACA passed in 2010, the full expansion of insurance coverage didn’t kick in until 2014. So the relevant metric is to see what happened to (age-adjusted) mortality rates before and after 2014. Lo and behold:
U.S. Age-Adjusted Mortality Rates per 100,000 (Annual, 2002–2015)Source: CDC WONDER Database
As the figure shows, if we control for the aging of the population, the mortality rate tends to fall over time. However, for whatever reason, after falling in 2014, the mortality jumped back up in 2015, erasing all the gains since 2013.
To see that this isn’t some artifact of this data set, we can cross-reference this information with life expectancy. Some readers may have been aware that researchers were alarmed in late 2016 when the latest figures showed U.S. life expectancy falling “for the first time in decades.”
Looking at the State-Level Data#3. But now we come to the third and most devastating component of the Cass study. He is intellectually honest and concedes that the uptick in mortality in 2015 could be a fluke, or it could be a genuine problem due to something other than ObamaCare. For example, there is a festering opioid epidemic in many parts of the US, so perhaps it was just bad luck (for Obama’s legacy) that this public health crisis happened to hit right when his signature legislature fully kicked in.
Yet Cass points out that we still have a pretty good control group to assess the specific impact of the Affordable Care Act’s boost to coverage. Specifically, only 31 states (plus DC) expanded Medicaid under the ACA, while the other 19 states rejected the offer. So if it’s true that the ACA really did “save lives” relative to what otherwise would have happened, but that the absolute mortality rate in the US went up because of some external problem (like the opioid crisis), then we should still expect see mortality rates jumping more in the “red” states that rejected Medicaid expansion.
And yet, as Cass points out in his study, we see the exact opposite. Namely, the states that took advantage of ObamaCare’s Medicaid expansion saw a worse impact on their mortality rates than the states that rejected the expansion.
ConclusionAlthough I personally do not yet have a theory on the specific mechanism that may be responsible, I am confident in saying that the actual data do not support the breathless claims that rolling back ObamaCare will literally kill many thousands of Americans. Fans of the Austrian school should not be shocked, though, to discover that having the federal government get more heavily involved in the health sector has apparently made things worse.
The wealth gap between white and black Americans is frequently discussed. Today it’s becoming popular to attribute disparities to black culture. Clearly all cultures are not equal, but can the subculture of some black American communities explain variations within the wealth gap?
For instance, fifty people in an inner-city neighborhood may engage in maladaptive activities; however, their actions are atypical of the broader black community. Discussing this issue is quite complicated since black culture is not monolithic. The culture of upper-class black Americans is different from that of their working-class peers. There are even subtle differences among various people from the working classes. Notwithstanding such nuances, the culture thesis is gaining widespread acceptance.
A popular view is that impoverished black Americans have developed a counterculture to cope with the realities of their environment. In many of his publications, the preeminent sociologist William Julius Wilson propounds that due to isolation from mainstream society inner-city blacks have devised a warped worldview to make sense of their realities. In an environment bereft of legitimate opportunity structures, deferring gratification appears impractical. Investing in the future seems illogical when the available evidence suggests that your prospects will not be different from your grandparents'. As such people may resort to illicit activities to satisfy their immediate priorities. Unfortunately, the allure of street life can be so great that some shun formal employment in favor of garnering street credit. Speaking to the Harvard Gazette, Wilson said: “Researchers find that for some young men, the draw of the street is so powerful they cannot avail themselves of legitimate employment opportunities when they become available.”
Where self-control is not valued, it’s easy to fathom a young man’s preference for the thrill of street exploits over the rigidity of a formal workplace. Studies have demonstrated a strong relationship between self-control and success, so the strength of the culture thesis is understandable.
However, though useful for understanding some inner-city residents, this theory has obvious shortfalls. We are told that black people in distressed communities might have less wealth than whites, but there is no explanation as to why even among higher-income groups blacks are still trailing whites. Identifying structural barriers as a possible cause also fails to yield an answer, because they transcend race. Occupational licensing and zoning, for example, are class-based barriers. Furthermore, entrepreneurs often complain that regulations impede business development, so exposure to barriers is universal. Neither can we blame discrimination considering that other groups outearn white Americans.
Cultural theorists are sensible to highlight the pernicious effects of inner-city subcultures on the life chances of black citizens, yet they are just skimming the surface. Moreover, when we review the data it becomes apparent that culture is important, so clearly the problem is that theorists are avoiding the more salient issues.
As Lawrence Mead ably points out in his recent paper "Poverty and Culture":
Attempts to attribute long term poverty to social barriers, such as racial discrimination or lack of jobs, have failed. Some scholars now attribute poverty to culture in the sense that many poor become disillusioned and no longer seek to advance themselves. More plausible is cultural difference. The United States has an individualist culture, derived from Europe, where most people seek to achieve personal goals. Racial minorities, however, all come from non-Western cultures where most people seek to adjust to outside conditions rather than seeking change….These differences best explain why minorities—especially blacks and Hispanics—typically respond only weakly to chances to get ahead through education and work, and also why crime and other social problems run high in low-income areas….The black middle class has converted to an individualist style and thus advanced, but most blacks have not.
Mead’s analysis is a bit deeper than that of other scholars, though several questions remain unanswered. For example, critics may assert that Asian Americans are from collectivist cultures, however they outperform white Americans in terms of earnings. Therefore, Mead’s argument could be exaggerated. Despite sounding interesting, this critique is superficial. Immigrants tend to be educated and highly ambitious and Asian Americans are no exception. As a result, people who migrate from collectivist cultures to America will succeed due to levels of education and work ethic. Mead’s thesis can withstand some criticisms but missing from his argument is a breakdown of individualistic traits.
Middle-class black Americans are still not as individualistic as their white colleagues. Individualistic individuals are more likely to take risks and express less fear of the unknown. So it is unsurprising that research suggests that black Americans are less inclined to invest in risky assets. All investors know that investing is a gamble, so this venture automatically selects those willing to embrace an uncertain future. Thus research suggests that relatively fewer blacks than whites embody this "Promethean spirit" of the West. Even the richest black Americans are relatively hesitant to invest in volatile assets.
Further, we cannot appreciate the intricacies of individualism without acknowledging that it has multiple dimensions. Indeed, scholars have delineated the distinction between horizontal individualism and vertical individualism. Whereas people in the former category strive to be different, vertical individualistic people are interested in being exceptional. Research by Meera Komarraju and Kevin Cockley suggests that African Americans score higher on the former. To truly be an individualist one must not fear breaking traditions in the quest to transform society. Carnegie, Rockefeller, and modern tycoons were unafraid of critics dismissing them as impractical or weird; if they had cared about the rantings of detractors, we would not have innovations.
In retrospect, the challenge to black progress is not only the dysfunctional culture of the inner city but also a limited appetite for radical individualism. Meanwhile, intellectuals encouraging blacks to shun Western culture must be ignored. A greater orientation toward more risk taking and exceptional thinking would likely do much toward helping to close the wealth gap.
It’s become quite fashionable for members of the so-called Intellectual Dark Web (IDW) like Dave Rubin, Ben Shapiro, and Jordan Peterson to decry equality of outcome as a thinly veiled guise for tyranny and oppression. However, in pleading against the doctrine of equality of outcome, these digital intellectuals inevitably defend the insidious doctrine of equality of opportunity.
What?! How could you be against equality of opportunity! Isn’t America the land of the free?! Isn’t equality of opportunity the literal meaning of freedom?
No.
In fact, to stand for equality of opportunity is to stand against what economist Ludwig von Mises called “the fundamental social phenomenon:” the division of labor.
The division of labor is the product of a naturally occurring social regularity, what Mises called “the Ricardian Law of Association” (158). The law of association is based on the English economist David Ricardo’s insight that for any two countries A and B where A is more efficient than B in producing both goods p and q, both countries are better off if both countries specialize in producing exclusively that in which each is relatively more efficient. Mises writes:
“Ricardo was fully aware of the fact that his law of comparative cost, which he expounded mainly in order to deal with a special problem of international trade, is a particular instance of the more universal law of association.
If A is in such a way more efficient than B that he needs for the production of 1 unit of the commodity p 3 hours compared with B’s 5, and for the production of 1 unit of q 2 hours compared with B’s 4, then both will gain if A confines himself to producing q and leaves B to produce p. If each of them gives 60 hours to producing p and 60 hours to producing q, the result of A’s labor is 20 p + 30 q; of B’s, 12 p + 15 q; and for both together, 32 p + 45 q. If however, A confines himself to producing q alone, he produces 60 q in 120 hours, while B, if he confines himself to producing p, produces in the same time 24 p. The result of their activities is then 24 p + 60 q, which, as p has for A a substitution ratio of 3/2 q and for B one of 5/4 q, signifies a larger output than 32 p + 45 q. Therefore it is manifest that the division of labor brings advantages to all who take part in it. Collaboration of the more talented, more able, and more industrious with the less talented, less able, and less industrious results in benefit for both . The gains derived from the division of labor are always mutual” (emphasis added).
Put differently, even though country (or individual A) can produce p and q faster than B, it still makes sense for A and B to specialize. Where Mises uses the language “substitution ratio” to explain why, you can also think in terms of what economists call opportunity cost. What Mises is showing in his example is that the opportunity cost to produce p is lower for B than it is for A.
This is the essence of the law of association. It’s the corner-stone of the division of labor. Furthermore, it isn’t just that we can all prosper in terms of greater total production despite the uneven, unequal distribution of talents and opportunities. It’s because of our differences that specialization within the division of labor according to the law of association that everyone is better off cooperating and trading.
To protest against equality of opportunity is to contest what Mises calls the natural conditions determining man’s life and effort. Mises states clearly, these “natural facts are: First, the innate inequality of men with regard to their ability to perform various kinds of labor. Second: the unequal distribution of the nature-given, nonhuman opportunities of production on the surface of the earth” (emphasis added).
We are unevenly, unequally distributed in nature. Therefore, the productive opportunities confronting us are always unequal. To call for equality of opportunity is just as much a plea for the tyrannical, forceful transformation of man’s uneven, unequal natural situation as the call for equality of outcome is a plea for the tyrannical, forceful redistribution of wealth.
As a matter of fact, man is inherently unequal in both opportunity and outcome. In contrast to the presumptions of the far-left and other economic illiterates, mankind’s inequality is the active ingredient in progressive, prosperous social transformation. That is, this inequality can be harnessed to make everyone better off. Mises writes, “If the earth’s surface were such that the physical conditions of production were the same at every point and if one man were as equal to all other men as is a circle to another with the same diameter in Euclidean geometry, division of labor would not offer any advantages for acting man” (emphasis added).
A close reader might object: “Mises is talking about nonhuman opportunities, things like geography and natural resources. Equality of opportunity is about equality of human opportunity!”
But this, too, misses the mark. First, consider the logistical impossibility of offering equal opportunity to every human task. Is the shop-owner expected to offer his available cashier position to every person equally, i.e. at the same time and in equally intelligible language across the planet?
Second, equality for so-called human opportunity would amount to an outright elimination of the essence of property ownership — that is, the right to determine not only what to do with one’s property, but the right to decide how to determine what to do with it! Suppose for the purpose of efficiency, or of mere arbitrary whim (or of whatever reason he chooses!), the shop-owner decides only to advertise his open cashier’s position to college-age students who live within five miles of his storefront. What “solution” would the tyrannical marchers for equality of opportunity recommend in order to remedy this supposed injustice?
The plea for equality of opportunity is a bourgeois virtue signal against the much-maligned boogieman of discrimination. My egalitarian friends fail to realize that the menace of equality does not quietly confine itself to modern racial and ethnic sensibilities. To the contrary, it bleeds throughout the culture whereby, in time, the mere acknowledgement of the biological differences between male and female constitutes an act of discriminatory “hate speech.” Paradoxically, free speech activists who apologize for equality of opportunity in order to justify their distaste of equality of outcome risk their own primary cause.
Fortunately, no affirmation of equality of outcome nor of opportunity is necessary to defend a free, collaborative, prosperous society. Economics, and economics alone, demonstrates otherwise. Mises writes,
“Neither history nor ethnology nor any other branch of knowledge can provide a description of the evolution which has from the packs and flocks of mankind’s nonhuman ancestors to the primitive, yet already high differentiated, societal groups about which information is provided in excavations, in the most ancient documents of history, and in the reports of explorers and travelers who have met savage tribes. The task which science is faced in respect of the origins of society can only consist in the demonstration of those factors which can and must result in association and its progressive intensification. Praxeology solves the problem. If and as far as labor under the division of labor is more productive than isolated labor, and if and as far as man is able to realize this fact, human action itself tends toward cooperation and association; man becomes a social being not in sacrificing his own concerns for the sake of a mythical Moloch, society, but in aiming at an improvement in his own welfare. Experience teaches that this condition – higher productivity achieved under the division of labor – is present because its cause – the inborn inequality of men and the inequality in the geographical distribution of the natural factors of production – is real. Thus we are in a position to comprehend the course of social evolution ” (emphasis added).
Advocates of a peaceful and prosperous society, or of free speech — as appears to be the unifying mission of the IDW — need not protest the uneven, unequal nature of mankind. Rather, they need only turn to economics to see that inequality is the nexus conjoining man’s natural condition of antagonistic poverty to collaborative prosperity.
Listen to the Audio Mises Wire version of this article.
To offer a semblance of solidarity with the working class, wealthy leftists have substituted identity politics for class conflict, and attempted to recast economic problems as problems of racism or bigotry. So, instead of assailing the manipulation of the economy by the state and crony capitalists, a black worker will instead attack systemic racism or better yet characterize capitalism as intrinsically racist. Rarely do identitarians comment on structural barriers impeding the progress of working-class people and minorities, such as occupational licensing and zoning. Expecting them to do so, however, indicates gullibility, because identity politics is primarily about asserting the goals of upper-middle-class liberals.
For example, instituting gender quotas to create jobs for socially connected women is a more laudable goal for identitarians than providing poor white boys with the tools to succeed in a modern economy. At its essence, identity politics aims to colonize Western civilization with the luxury beliefs of the elite. Even though evidence for systemic racism could be nonexistent, this does not prevent identitarians from reminding struggling individuals that their suffering stems from a miasma of institutional racism and white privilege. Tackling issues like how the regulatory policy of California drives businesses out of the state, thus impoverishing minorities, is not high on the agenda of identitarians for obvious reasons. These disastrous regulations may be enriching crony capitalists who fund their causes.
Furthermore, when upper-middle-class identitarians clamor for representation in academia or the corporate world, they are merely demonstrating the activism of an elite political machinery. For instance, according to the morality of identity politics, it is better for a board to reserve a seat for a wealthy woman than appoint a competent white man with working-class credentials. Clearly, the beneficiaries of identity-based affirmative action will overwhelmingly be the scions of the elite. Without doubt, identity politics is just upper-middle-class activism.
Citing analysis conducted by the People’s Policy Project, Eric London illustrates that identitarians dismiss a trove of data detailing intragroup wealth disparities:
Matt Bruenig of the People’s Policy Project analyzed data from the 2017 Federal Reserve report and showed the extreme degree of inequality within racial minority groups. Among both African American and Latino populations, roughly 65 percent own zero percent of the total wealth owned by their respective racial groups. The richest 10 percent of African Americans own 75.3 percent of all wealth owned by African Americans; the richest 10 percent of Latinos own 77.9 percent of all Latino wealth; and 74.6 percent of the wealth owned by whites is owned by the top 10 percent of whites.
London concludes:
American society is increasingly polarized—not between races, but between classes. In this context, the class basis of the upper-middle class’s obsession with racial and identity politics becomes clearer….Identity politics has become a key mechanism through which the next 9 percent situated below the top 1 percent advances its grievances within the political establishment, fighting for “space” in the universities, trade unions, political parties, state apparatus, and corporate media.
Moreover, digging deeper through the data it is also revealed that education confers significant advantages on the middle class in terms of earnings, thus exacerbating the income gap. Accordingly, the 2017 Survey of Consumer Finances points out that families holding a bachelor’s degree exhibit mean and median wealth values over five times the values for less educated families. Additionally, the trend is equally pervasive across racial groups. For example, the net worth of the median college-educated black family is approximately six times that of a median black family with less education, whereas the ratio is about 4.5 for Hispanic families.
Likewise, conveniently omitted from the conversation on inequality is the enormity of the wealth gap between the black upper class and poor blacks. As Bertrand Cooper of the People’s Policy Project observes:
The Black poor are not only on unequal footing with wealthy Whites but with wealthy Blacks as well….The median wealth of the Black poor equates to just 1.5 percent of the race-wide median. At the other end of the spectrum, the Black upper-class possesses a median wealth 19x greater than the race-wide median. If we compare the top and bottom, we find that the Black upper-class has 1382x as much wealth as the Black poor.
From this analysis we can conclude that counter to popular opinion, identitarians are not Marxists, and fail even to take a view broad enough to at least consider dynamics of state power. In fact, in an article titled “Identity Politics: A Marxist View,” Professor Raju Das articulates:
The theory of identity politics is the discussion of oppression minus the discussion of the materiality, state power, exploitation and mass revolutionary movements. Marxist social oppression-ism (e.g. Marxist feminism, etc.) is the discussion of oppression plus the discussion of the materiality, state power, exploitation and mass revolutionary movements. The former cannot include the latter. The latter can include the former.
The success of Barbados relative to other Caribbean countries has unleashed a welter of studies explaining the ascendancy of Barbados. Frequently, Barbados is compared to Jamaica because they are both former colonies of England that attained independence in the 1960s.
More important is that Barbados and Jamaica were Britain’s most lucrative colonies in the British West Indies thereby making the study of their divergent paths particularly intriguing. Due to historical similarities, some surmise that variations in performance between Jamaica and Barbados are primarily a consequence of postindependence policies with Barbados adopting a less statist approach.
However, as historical sources will explain the success of Barbados is attributable to its institutional history and cultural profile. Historians like Trevor Burnard and Orlando Patterson contend that slavery in Barbados and Jamaica was excruciatingly brutal, but in a pathbreaking essay Patterson opines that because the landscape of Barbados limited the potential for the emergence of maroon communities slaves rationally calculated that revolutions were counter to their survival. The responses to slave insurrections were swift and brutal and in a small territory like Barbados there were few opportunities for alternative communities, so rather than being rebellious, slaves in Barbados found it more feasible to cooperate with the plantocracy.
Historian Barry Gaspar marvels at the fact that during the eighteenth-century Barbados failed to record insurrections to usurp the plantocracy. Rather than indicating the passivity of enslaved blacks, this suggests that the planter class could easily thwart conspiracies. Usually, slaves who were fearful of backlash would leak intelligence to planters, and the pace at which the state squashed uprisings often demotivated slaves from planning other revolts.
D.H. Figueredo and Frank Argote Freyre in A Brief History of the Caribbean show that brutal responses to uprisings created a deterrent to revolts: “There were uprisings in 1649, 1775, and 1692. The 1675 rebellion involved more than 100 slaves from plantations across the island. Betrayed by a female slave named Fortuna, the conspirators were captured. Half of them were executed. The rest were punished and sent back to plantations. The 1692 rebellion involved more than 300 slaves, nearly one-third of whom were executed.”
Such arrangements resulted in divergent socio-cultural realities. As Orlando Patterson observes in his fascinating article “Institutions, Colonialism, and Economic Development: The Acemoglu-Johnson-Robinson (AJR) Thesis in Light of the Caribbean Experience,” there was greater pressure for black Barbadians to conform to the culture of the white slaveholder class by appropriating British ideas.
In contrast to Barbados, Jamaica afforded more opportunities to erect maroon communities and unlike Barbados, Jamaica did not record a natural increase in the slave population so there was greater dependence on importing Africans who were disproportionately responsible for revolts. Therefore, due to the potent influence of African customs and wider options for rebellious slaves, black Jamaicans developed a creole Jamaican culture that often contradicted the cultural ideals of the planter class.
Based on the evidence presented so far it would appear to observers that geography occupies a central role in explaining the character of black Barbadians, but it is only a piece of the puzzle. In Barbados, there was a cultural selection for blacks expressing bourgeois traits. According to historian Hilary Beckles in his 2016 publication The First Black Slave Society: Britain’s ‘’Barbarity Time’’ in Barbados, 1636–1876, Bajan planters adopted a ruthless form of management that rewarded compliant slaves but punished unruly subordinates.
Enslaved workers were aware that the Bajan government was quite successful at squashing revolts, so they had an incentive to follow rules and execute their tasks in a timely manner. Because uncooperative slaves were either isolated or killed, Barbados had a greater supply of black slaves who were more likely to collaborate with planters and invest time in acquiring human capital to prepare them for freedom. Orlando Patterson refers to the behavior of black Barbadians as a “counter-hegemonic strategy of subaltern cultural appropriation.” Contrary to the musings of revolutionaries, black Barbadians were not passive, but rather long-term thinkers.
They understood that failing to appropriate British culture and institutions would never grant them the confidence of white elites to manage the country. Moreover, black Barbadians also knew that if whites felt threatened by their presence, they would be hesitant to transfer power. By demonstrating their propensity for compliance black Barbadians were engaging in the shrewd management of white officials by letting them think they were controllable so that they could be incorporated into senior management.
According to Orlando Patterson, this strategy was indeed successful:
So confident was the Barbadian elite of their control of the Barbadian working class that it was the only Caribbean Island not to abolish its system of elite representative government in the latter half of the 19th century in favor of direct “Crown Colony” rule from Britain out of fear that they were being taken over by the increasingly educated colored groups.
The Barbadian Assembly remained in place until the 1950s in the last century, a 300-year history of legislative continuity. Another expression of their self-confidence, appeared much earlier: the remarkable fact that the island’s police force was composed entirely of Afro-Barbadians by 1842, a mere 4 years after the final abolition of slavery.
Indeed, Patterson submits that Barbados is more developed than Jamaican because black Barbadians had greater exposure to managing institutions, as a result of the confidence that whites reposed in their abilities. The British were so impressed by black Barbadians they became quite useful to the imperial project notes Orlando Patterson:
As impressed by the disciplined work ethic, education, and lack of rebelliousness of Barbadians as were employers in other islands, the British imperial authorities by the latter half of the 19th century decided that Barbadians were the “smart” and loyal blacks, and proceeded to train and use them in its imperial expansion and consolidation in Africa, the Caribbean and Central America as they had done with groups such as the Sikhs and Gurkhas.
Evidently, blacks in Jamaica and Barbados inherited similar institutions, but black Barbadians inherited a richer history of institutional management than their Jamaican counterparts and this has entrenched striking differences in the economic performance of both countries. Yet we should not overlook the possibility that Barbados exhibits greater success than Jamaica due to the imprint of the Igbos.
The Igbos are known for entrepreneurial and intellectual excellence in Nigeria and across the world and from 1740 to 1810 the Igbo accounted for around 40 percent of all slave arrivals in Barbados. Jamaica also imported Igbo slaves; however scientific tests reveal that though most Africans who arrived in Jamaica were disembarked from the Bight of Biafra most Jamaicans are descendants of Africans who were domiciled on the Gold Coast. Igbos were usually taken from the Bight of Biafra, but slaves from across Africa were gathered in this region for export hence many of the captives were not of Igbo origin.
Historical sources assert that Igbos were admired for their civility and intelligence, yet they were also portrayed as soft and likely to commit suicide. On the other hand, Akan slaves from the Gold Coast were noted for being talented workmen with a proclivity for planning revolts. Considering that the management system in Barbados imposed immense pressure on slaves to conform in Barbados there would have been a more robust selection for the Igbo personality type than in Jamaica.
The case studies of Jamaica and Barbados illustrate that institutional history and culture can indeed shape contemporary development. Although both countries seem similar, deeper penetration of historical sources has shown that Barbados was already ahead of Jamaica long before gaining independence.
Since independence in 1947, the Indian subcontinent has remained bound to its ancient caste system, which can generally be understood in this descending order, albeit with significant variations and subcastes depending on region:
Brahmans (priests)Kshatriya (warriors)Vaishya (merchants and traders)Sudra (artisans and laborers) A fifth caste, the Dalits, are treated as the lowest of the low; they are characterized as untouchables and historically have been subjected to violence. The Dalits have very little socioeconomic mobility, only being granted jobs which entail cleaning sewers and disposing of dead animals. Untouchability has also manifested in members of higher castes refusing to drink the same water as Dalits or eat food that they have consumed. There are even instances of Hindu vigilante groups and police officers colluding to murder Dalits who attempt to marry outside of their caste.
While belonging to a higher caste has mostly become a source of unearned prestige in modern Indian society—as opposed to denoting actual religious or communal duties—discrimination toward Dalits has persisted, also despite the use of quotas for the representation of Dalits in education and government. Dalits and other Hindus have often been encouraged to convert to other religions to escape discrimination. The great reformer Dr. Bhimrao Ramji Ambedkar set an example for this when he began the Dalit Buddhist movement. However, the bigotry toward Dalits has often transcended Hinduism and followed the converts into Islam and Christianity, as evidenced by the use of specific labels to identify them, such as "Dalit Christian."
Cushioned Capitalism A turning point in the social condition of the Dalits came in 1991; the beginning of the free market in India came when the government repealed many of its antimonopoly laws, including the 1969 Monopolies and Restrictive Trade Practices Act. These laws had been introduced to keep big business in check and reflected the admiration that India’s first prime minister, Jawaharlal Nehru, held for Stalin’s central economic planning, as Deepak Lal explained in Reviving the Invisible Hand.
Thomas Sowell in Basic Economics terms this collusion of capital and government a "cushioned capitalism" that only benefitted leading industrialists of that time, who held an interest in maintaining state supervision over the flow of capital and the labor market. The formation of the Bombay Club in the 1990s is an example, consisting of leading Indian industrialists who were opposed to rapid economic liberalization specifically because they anticipated that foreigners and other unwanted stakeholders would threaten their own shares in the domestic market.
This economic liberalization, however, has allowed Dalits to improve the condition of their communities, even in rural areas where dominant castes assert their authority with violence and suffer no repercussions.
From Rags to Rupees The mechanisms of the free market have given Dalits the opportunity to improve the conditions of their communities, particularly in rural and agrarian parts of India, where ownership of TVs, electric fans, and brick houses is considered an indicator of a person’s financial progress. In his paper for the Cato Institute, Swaminathan S. Anklesaria Aiyar notes how ownership of the aforementioned commodities among Dalit communities in less urbanized regions encouragingly rose between 1990 and 2008, particularly in two regions, Khurja and Bilariaganj, where the people's predicament had been exceptionally sordid:
The proportion of Dalits living in brick houses rose from 18.1 percent to 64.4 percent in Bilariaganj and from 38.4 percent to 94.6 percent in Khurja.The number of Dalits owning TVs in rose from zero prior to 1990 to 22.8 percent in Bilariaganj and 45 percent in Khurja by 2008.Between 1990 and 2008, ownership of electric fans among Dalits rose from 2.1 percent to 36.7 percent in Bilariaganj and from 4.5 percent to 61.4 percent in Khurja. Ownership of commodities is not the sole metric to prove that Dalits have thrived in a freer market. During the era of cushioned capitalism, upper-caste businessmen monopolized the offer of new services on the market under the cover of the Federation of Indian Chambers of Commerce and Industry and ensured that contracts were provided mostly to family members or close acquaintances. With the establishment of the Dalit Indian Chamber of Commerce and Industry (DICCI) in 2005, Dalits obtained a starting point to learn more about idea validation, personal finance, and market assessment free from discrimination and the reliance on reservations. In 2013, it launched a venture capital fund to aid upcoming Dalit entrepreneurs. The DICCI has continued to grow in membership and continues to aid lower-caste communities in impoverished areas across the country.
Additionally, there is an impressive list of Dalits who have benefitted from embracing the options the market provides them with, including Rajesh Saraiya, Bhagwan Gawai, Sukesh Rajan, and Chandra Bhan Prasad. Prasad himself was a Maoist during his university years before witnessing the results of the 1991 economic reforms. He changed directions and cofounded the DICCI with Saraiya while promoting foreign investment. Of course, this is not to say that problems for Dalits have disappeared: in addition to the daily violence they experience, they still face some discrimination in underdeveloped areas and must rely on middlemen, so they do not earn high rates for their products, a problem that has been worse during the pandemic. Aiyar himself concedes that at the start of their respective careers, Dalit businessmen were often hesitant to publicize their castes lest they be ostracized in the domestic market. Nonetheless, when considering the predicament of Dalits prior to the reversal of the Indian government’s attitude toward globalization, we can see that progress has been made, and the Dalit communities are more than willing to continue moving forward.
Beyond the Market A common criticism that cultural conservatives have levied against capitalism is that the change in social relations that the free market brings about via capital development slowly eliminates the need for manual labor. With the socioeconomic mobility of Dalits being coeval to the rise of technologies to replace the unsanitary and demeaning jobs they performed exclusively only one or two generations ago, there is a growing concern about how Dalit upward mobility will reshape Hindu society in India. A useful way of examining the decline of social barriers is marriage across those lines. This is not peculiar to India or caste; in The Ancien Régime and the French Revolution, Alexis de Tocqueville wrote:
If you wish to know whether the caste system in a nation with the ideas, habits and boundaries it has created, has been demolished for certain, just look at marriages. They will show you the decisive feature you seek.
With regard to the marriage issue, Lal in Reviving the Invisible Hand helps us understand how caste has taken on a more secular nature during modernization:
A belief in hierarchy still forms a major part of the Hindu psyche, but with "hierarchical notions based on purity and pollution on the decline, and giving way to secular criteria such as education, income, kind of work performed, place of residence and life style."
Considering the vast cultural expanse India possesses, there are only a few definite trends which can be distilled, one of them being that intercaste marriage is more frequent in urban areas than in rural. This can easily be attributed to the fact that metropolitan areas allow for the mingling of people of different backgrounds and for all individuals with higher education to have compatible lifestyles, residences, and incomes. This reinforces the secularization of caste, as defined by Lal, through which Dalits are achieving remarkable progress. Hence, while Tocqueville is right in asserting that certain habits and boundaries diminish as a result of intercaste marriage, the grander results that capitalism has allowed for in India, without leading to Westernization, demonstrate that capitalism is not an inherently bad thing.
Conclusion The Dalits are still fighting an uphill battle. Those not fortunate enough to be born in urban areas or to middle-class families face threats of death and the expropriation of their property. However, the social cohesion among Dalit communities that have been strengthened by the new economies generated by their entrepreneurs and leaders gives hope to those who believe in the protection of individual freedom and property.
Mark Thornton is the Peterson-Luddy Chair in Austrian Economics and a Senior Fellow at the Mises Institute. He serves as the Book Review Editor of the Quarterly Journal of Austrian Economics. His publications include The Economics of Prohibition (1991), Tariffs, Blockades, and Inflation: The Economics of the Civil War (2004), The Quotable Mises (2005), The Bastiat Collection (2007), An Essay on Economic Theory (2010), The Bastiat Reader (2014), and The Skyscraper Curse and How Austrian Economists Predicted Every Major Crisis of the Last Century (2018).
Dr. Thornton served as the editor of the Austrian Economics Newsletter and was a member of the Editorial Board of the Journal of Libertarian Studies and several other academic journals. He has served as a member of the graduate faculties of Auburn University and Columbus State University. He has also taught economics at Auburn University at Montgomery and Trinity University in Texas. Mark served as Assistant Superintendent of Banking and economic adviser to Governor Fob James of Alabama (1997-1999), and he was awarded the University Research Award at Columbus State University in 2002. He is a graduate of St. Bonaventure University and received his PhD in economics from Auburn University. In 2014, he debated in opposition to the "War on Drugs" at Oxford Union.
Dr. Thornton has been featured in American Spectator, Barron's, Bloomberg, Christian Science Monitor, The Economist, Forbes, Investors' Business Daily, Le Monde, New York Post, New York Times, USA Today, Wall Street Journal, Economic Times (India), Financial Times (Norway), and Tejarat-e-Farda (Iran). He has also had regular multiple appearances on Russia Today and Press TV
His editorials and interviews have appeared in the following leading regional newspapers: Apple Daily (Hong Kong), Atlanta Constitution, Birmingham News, Business Alabama, Chicago Sun-Times, Houston Chronicle, Mobile Press Register, Minneapolis-St. Paul Star Tribune, Montgomery Advertiser, New York Post, Orange County Register, Richmond Times Dispatch, Tampa Tribune, and the Washington Times
His commentary appears regularly in the Mises Daily and the Mises Wire. He also appears regularly on "Boom-Bust," "RT," "Butler on Business," "Tom Woods Show," "Thom Hartmann Show," "Scott Horton Show," "Press TV and "Freedom Works."
"We can’t welcome all the misery of the world but we must take our share." This is a maxim whose popularity speaks volumes about our apprehension over poverty and immigration.
This seemingly benevolent vocabulary, however, limits debate. It insists that generous people will welcome more demands on the taxpayer's pocketbooks. The immigrant must be welcomed, they are told. The natives have an obligation of care, which means more and more subsidies in a country where they are also being told to tighten their belts.
But forced solidarity with all of humanity breeds resentment, and supporters of this view forget that solidarity with others flourishes only in the context of elective affinities. That is why the Austrian economist Friedrich Hayek said that, while he was an internationalist in theory, socialism was driving him to become a nationalist in practice.
The "State medical assistance," mainly directed at illegal aliens, is indicative of this trend. Although the total cost does not exceed 1% of the budget of the State, it serves to increase frustration with migrants and the state’s profligacy.
Indeed, an abundant academic literature suggests the existence of a causality between the generosity of social systems and the mistrust of natives toward immigrants. It is therefore not surprising to see the emergence of a movement toward solidarity among natives. Government-imposed charity only works with benefactors who identify with its beneficiaries.
Blaming Europeans for Poverty in the Developing World Altruistic moralizing is therefore the best way to arouse feelings of bitterness among locals. It leads to assimilate foreigners to a horde of parasites whose fate will be to live off the sweat of the “host” society. The exasperation is all the greater as the injunction made to the Europeans to sacrifice themselves is accompanied by a supposed guilt for the poverty of the third world. The setbacks of Africans continue to be blamed on the colonial past and the opulence of the West. The descendants of settlers are called to account for acts they did not commit. Conversely, the responsibility of the African political elite is ignored while their corruption is the main obstacle to the development of the continent.
You do not have to be an expert in development economics to see the absence of a correlation between the colonial past, poverty, and prosperity. In the 1960s, the per capita GDP of South Korea and that of most countries in sub-Saharan Africa were comparable. But in this case, only Korea has established stable institutions that are compatible with the development of a market economy. Similarly, some of the most prosperous places in the world include former colonies such as Hong Kong and Singapore, whose wealth sometimes surpasses that of the former European colonial powers. These successes, however, are ignored by Third Worlders. They contravene the victimization story to which the former colonies are assigned. They also deny the myth of the Western monopoly of opulence that feeds post-colonial resentment, itself tinged with anti-capitalism.
In spite of the assignment to misery and dependence, there is the promise of development through trade. This path is nevertheless ignored by the political class, for whom the salvation of foreign populations resides in assistance. On the external scene, despite its failures, development aid remains the only horizon of the fight against poverty in the South.
Even African leaders no longer adhere to these solutions, as evidenced by their proposed free trade area. 44 of the 55 member states of the African Union signed an agreement in Kigali on 21 March 2018, to reduce the barriers to trade on the continent.
Limiting the Ability to Work Western states — including France and Italy — who make the mistake of “welcoming” refugees by denying them the right to work and trade could therefore be inspired by this philosophy. They would promote their social integration, ease the pressure on public finances and abolish the logic of paternalistic repentance that tarnishes the image of these populations whose thirst for entrepreneurship is yet unmatched. Refugees are indeed the first to apply the famous slogan “Trade, not help!” As long as they are allowed to work.
The work of Alexander Betts and Paul Collier, economists at Oxford University, for example, show that refugees prefer to flee UN-run shelters to work in the informal economy as soon as opportunity presents itself in the countries where they are hosted. When they are allowed to work, as in Uganda, they open businesses and employ indigenous people. It is therefore only up to Europeans to reveal the richness concealed by the apparent misfortune of these industrious populations.
This article originally appeared in French at Le Figaro.
An influential left-wing think tank has called for the government to create millions of jobs for those without a college degree, leading to headlines like The Nation’s declaration that “It’s Time for the Government to Give Everyone a Job.”
One fatal flaw of such a plan was exposed in the comments section of that article, when a commentator named Ira Dember pointed out the perverse incentives that would result if the government guaranteed jobs to only those without a college degree.
Namely, that there is little incentive to undertake the expense of going to college in the hopes of finding employment, when the government will guarantee employment to only those who choose to eschew higher education!
But the underlying notion of this proposal — that the government can solve poverty by creating jobs for those unable to find work — is riddled with economic fallacies.
The logic underpinning a government-jobs program was best epitomized by an advocate who declared that, “The goal in and of itself is job creation. You create the job to fit the person.”
But employment is not an end in and of itself. Rather, it is a means to an end: namely the increased standard of living that the worker obtains by trading his labor for wages.
In a free market, employment is a value creation process — with jobs stemming from the wants and needs of consumers as conveyed through the price system.
It is this productive nature of free-market jobs that make them desirable and capable of increasing a worker’s standard of living.
Wages spring directly from, and are proportional to, the degree in which a job creates wealth by helping to satisfy an unmet need. As is the case for all mutually-agreeable trades in a free market, both sides gain and wealth is created: the worker receives wages that he values more than his labor and the consumer receives a product or service he values more than its price.
In other words, a worker’s wages are reflective of the additional wealth he helped create, which enables his newly improved standard of living.
Because government-created jobs are devoid of this wealth creation process, they are merely a transfer of wealth from taxpayers to the program’s beneficiaries.
This is made clear by taking the argument to its logical conclusion and considering a government proposal that paid one set of workers to dig ditches and the other set to fill them back in. While there would be a virtually unlimited number of jobs that could be created under such a program, there is clearly no value creation of any kind.
Thus, a government-mandated job omits the very thing that makes employment desirable in the first place — value creation.
But it’s even worse than that.
As the great Frédéric Bastiat taught us, we need to also consider that which is unseen.
Every government-created job takes resources away from a private sector job that could have been created otherwise. Even worse, since the government is incapable of possessing the knowledge necessary to determine the most productive means of employment, the trade of one government job for a private sector one will almost always result in a significant loss of value.
Moreover, with a guiding principle that jobs are an end unto themselves, the government is strongly incentivized to engage in the most wasteful projects possible, as those would require greater levels of employment than a more efficient alternative.
While a government job would certainly benefit those currently unemployed in the short term, they too stand to lose in the long run.
The longer these workers stay in make-shift jobs, the less opportunity they have to develop skills that have actual value, a harm that compounds over time.
The best thing the government can do to help those struggling to find work is to get out of the way. Repeal cronyist occupational licensing laws that lower wages and reduce employment. Stop imposing a one-size fits all monopoly form of education that is poorly suited for preparing students for today’s rapidly changing and dynamic job market. Repeal and reduce anti-business taxes and regulations so that entrepreneurs can get back to their work of making us all richer.
A government-jobs program would only make worse a problem that is, for the most part, the result of government intervention.
Peruvian economist Hernando de Soto has devoted his life to alleviating poverty in the developing world. His research, well-received by those on the left as well as the right, documents the bureaucratic hurdles that prevent ordinary citizens in states like Egypt, Colombia, and Indonesia from obtaining business licenses. In many nations, it can take hundreds of days of waiting around in government offices to acquire permission to open a bakery or a laundromat. This prevents all but the rich and well-connected from accessing the ‘formal sector’ of legally sanctioned activity. As a result, the poor are pushed into the informal sector, which often comprises over 70% of the economy.
Years of research led de Soto to the conclusion that privatization in Latin America, Africa, and much of the post-Soviet world has not done enough to help the poor, precisely because it has been limited to the formal sector. Since the poor work within the informal economy, they don’t reap the benefits or the protections of private property. Their land is seized without warning, their homes are bulldozed for development projects, and they regularly face pressure from corrupt police. In The Mystery of Capital, de Soto explains that this is why it often appears that “Capitalism triumphs in the West and fails everywhere else.” The work traces the development of private property in the common-law system of the West, and juxtaposes this development to the stagnation of statutory law systems in the rest of the world.
The implications for the developing world are clear — without the proper legal structure, the market is not free at all. Privatization must come hand-in-hand with laws that recognize the property rights of the poor. Yet what about the developed world, which de Soto mines for insight into the hidden architecture of capitalism? Is the institution of private property in its ‘final’ stage of development in a country like the United States?
The answer, of course, is no — there is no final stage in the development of any social institution. Private property developed over time, and is still in development. And that may be a good thing, because the institution is not appropriately calibrated to accommodate the pressing needs of post-industrial societies.
Indeed, throughout US history, courts have often discarded ‘pure’ property rights in favor of development. Mises addresses this head-on in Human Action:
The laws concerning liability and indemnification for damages caused were and still are in some respects deficient. By and large the principle is accepted that everybody is liable to damages which his actions have inflicted upon other people. But there were loopholes left which the legislators were slow to fill. In some cases this tardiness was intentional because the imperfections agreed with the plans of the authorities. When in the past in many countries the owners of factories and railroads were not held liable for the damages which the conduct of their enterprises inflicted on the property and health of neighbors, patrons, employees, and other people through smoke, soot, noise, water pollution, and accidents caused by defective or inappropriate equipment, the idea was that one should not undermine the progress of industrialization and the development of transportation facilities. The same doctrines which prompted and still are prompting many governments to encourage investment in factories and railroads through subsidies, tax exemption, tariffs, and cheap credit were at work in the emergence of a legal state of affairs in which the liability of such enterprises was either formally or practically abated.
As Mises notes, the delimitation of private property is the result of a political, not an economic, process. Legislatures and judges decide which activities count as nuisances to be prohibited, and which do not. Corporations then base their actions on these guidelines. The implication is that environmentalists have incorrectly identified capitalism as the culprit of a crime that was in fact committed by agents of the State.
In other words, the government has done a terrible job of defining and protecting our property rights. In court case after court case, the air and water rights of individuals have been overridden in favor of industrial and transportation projects conceived to be in the ‘public interest.’ Consequent environmental degradation the result of a perversion of the free-market system. In a properly functioning market, tort law would be a much more effective way of dealing with environmental issues (Coase established this in the 1950s). Instead, massive increases in federally administered public lands are hailed by activists as victories for the common person and the environment.
This ignores the fact that ‘public’ property, including America’s air and waterways, tends to be the most polluted. The ramifications of these policies — of ignoring private rights in favor of the ‘public good’ — have been counterproductive. They have resulted in extensive environmental damage that indeed harms the ‘public good.’ As in the developing world, the only way forward is the further delimitation of private property rights. The ideology of public interests has failed.
Citizens of the Western world have good reason to apply de Soto’s insights to problems in their own societies. ‘Developed’ nations are, after all, still developing both technology and legal structures in the 21st century. If that development brings further delimitation of private property rights, it will simultaneously lower the incentive for the heavy-handed regulation that acts as an unwieldy band-aid on the loopholes that pockmark the institution of private property.
Despite significant economic progress since ancient times, most people in agrarian societies continued to live at the subsistence minimum until modern times. By the nineteenth century, it was said that these societies fell into a "Malthusian trap." The Malthusian trap describes a situation that keeps population growth in line with available resources. The increase in income per person was not sustainable in the long run, as economic growth was inevitably consumed by population increases.
Western European countries, however, managed to escape the Malthusian trap through the Industrial Revolution which accelerated in the nineteenth century. Escaping the Malthusian trap meant an increase in both population growth and economic prosperity for the vast majority of people. For example, Europe’s population more than doubled between 1800 and 1900, but the decline of living standards no longer accompanied this growth as it had in pre-industrial societies. Economic historians explained that the phenomenon resulted from technological advances, demographic shifts due to European marriage patterns (marrying in later years, establishing a separate household, having fewer children), and increased human intelligence. All of the above are supposed to secure the systematic excess of output growth rates over the overpopulation growth rate. It seems that one crucial factor needs to be added to the list: capitalism itself, where economic laws are fully unfolded and have maximum manifestation and impact on society. Humanity entered a capitalist mode of production, which became possible by limiting absolutism and intrusion into the economy, creating democratic institutions, and improving human rights, law supremacy, and its uniform application.
The ideal market economy emerges in the society that is described as a collection of numerous self-governing producers that meet multiple independent consumers and freely exchange commodities and services according to the rates established on the market by the equilibrium between supply and demand. People behave according to the rules and freely exercise their right to enter a business transaction or refuse to participate. Such a society is characterized by the primacy of private property, an extensive division of labor and cooperation, and rich assortments of commodities and services. Economic freedom was accompanied by a high degree of personal freedom. The closest social formation of this ideal happened to be capitalism at the times of classical liberals in the course of the beginning stages of the Industrial Revolution.
Thus, we already see the following pattern: In the societies of hunter-gatherers, economic laws had minimal manifestation but the most prolonged influence (more than 150,000 years). The agricultural revolution created more stable and secure communities, but they were characterized by a lack of capital the lead to low use of more productive factors of production. Low levels of personal economic freedom also inhibited growth and productivity. Industrialization, on the other hand, offered an escape.
But the escap is not always permanent. Socialist governments often act to undo the benefits of insutrialization and capitalism. Historically, socialist regimes have tried to suppress or override the natural operation of personal choice and capital accumulation in economiees. Socialism, in general, encroaches on private property rights, controls the economy, and subordinates individual decision-making to the collective. In this regard, it is appropriate to assume that socialism would push society back toward the Malthusian trap.
Let us examine this hypothesis in light of the case of Venezuela. Venezuela escaped the Malthusian trap only in the thirties of the last century, judging by the GDP output per capita (Figure 1). According to scholars, in the period from the 1920s to the 1940s, the average annual growth rate was more than 10 percent. Indeed, in order to escape the gravity of the trap, an economy needs a high magnitude of acceleration. Now it is hard to believe, but in 1950 , the country ranked fourth in the world in terms of GDP per capita. Unfortunately, as soon as Venezuela established itself as a powerhouse of South America, the government started to implement economic policies from the cookbooks of socialism. Undoubtedly, the country fell prey to the Soviet Union’s influences on Latin America during the Cold War. The main assault was directed on private property rights in the industry and in agriculture. In the late 1950s, the government nationalized the telephone company and founded state-owned metallurgical plants and petrochemical and oil corporations. The authority initiated the agrarian reform whereby the state practically expropriated lands from large landowners and redistributed it among new farmers. Despite the continuing economic growth, the Venezuelan economy was poisoned by the venom of socialism. By the 1970s, Venezuela was a mixed economy with a significant share of state-owned enterprises in the most valuable sectors, which were controlled by a central planning agency. Every new government doubled down on implementing socialist measures as a way to solve the socio-economic issues facing society. It was a continuous trend of nationalization of industries, control of prices and minimum wage, unionization, the imposition of new taxes, and administration of exchange and interest rates.
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The high revenue from the oil boom fueled the economy; however, the government went on an enormous spending spree. People and the remaining business became live out of the state generosity rather than creating wealth themselves. By 1980, the economic growth stalled, and in the next decade, Venezuela’s economy experienced stagnation. Partial liberal reforms undertaken by the government in conjunction with IMF could not divert an unfavorable trend. Several fruitful years in the mid-2000s, due to a super profit from unprecedented prices for petroleum products, was the last breath before the economy went for a nosedive after the market correction. The economy was exhibiting negative growth, hyperinflation, extreme impoverishment of the population, the deficit of basic food and consumer products. How can one explain such unfortunate events? Socialism adversely affects personal and economic freedoms—the essential components of socio-economic systems that are subject to universal and natural economic laws. The implementation of socialistic measures inhibited the natural flow of market forces in the official economic sphere and funneled them to the shadow .
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Venezuela has fallen into the man-made socialist Malthusian trap. The socialist Malthusian trap is a condition of politico-economic zugzwang when every consecutive move leads to an even worse situation. Whatever the government does in the framework of the socialist way of thinking will have an accumulating negative effect on people’s wellbeing. Venezuela entered the territory of a humanitarian crisis, which manifested itself in widespread hunger and weakened health care. Gregory Clark’s “A Farewell to Alms: A Brief Economic History of the World” determined the average daily energy intake from food per capita of about 2,300 or less, as is typical for those social systems that did not escape the Malthusian trap. At the same time, WHO established 2,100 kcal/capita/day as a minimum daily norm. Figure 2 shows that even during the years of stable GDP growth in 1960–1970, Venezuelans experienced food supply problems. This may be evidence of a socialist agricultural reform in the late 50s. Also, the inability to feed their people is a common feature of all socialist regimes. The country was counting on food imports, and when the price of oil was high, food consumption increased. In the socialistic Malthusian trap, people faced acute hunger. The recent study revealed that Venezuelans lost an average of 24 lbs in body weight in 2017. Therefore, both indexes show that socialism drove the country into the Malthusian trap. In contrast to the original trap that all societies used to experience in their history, the socialistic Malthusian trap is human-made. The economic misery was not caused by full-scale warfare or a natural disaster of biblical proportions. Instead, Venezuela had all the ingredients for success, which pre-industrial society was lacking, but stepped into the uncharted territory of socialism and lost the bet.
Socialism, as a regime of willful ignorance of fundamental economic laws and economic illiteracy, drives society back into the Malthusian trap. Venezuela is a vivid and unfortunate example of the implementing of the socialist idea in modern times. The way out of the trap is a full restoration of economic and individual freedoms that guarantee fundamental laws of the economy to unfold freely to people’s advantage.
The death of Robert Mugabe on September 6, 2019, reignited conversations about the future of Zimbabwe. Economist Steve Hanke recently estimated that Zimbabwe’s inflation was at 605 percent, indicating the country is still in a precarious economic situation.
Although a successful coup was launched against Mugabe in late 2017, the residual impact of his thirty-seven years in power is still felt to this day, and the government headed by Emmerson Mnangagwa has shown no signs of willingness to reform the Zimbabwean economy. The euphoria following a regime change often deludes succeeding governments into thinking that they will magically right previous wrongs and bring prosperity to the land. History shows this is often not the case. Mnangagwa and future leaders will have their hands full in trying to get what was once the breadbasket of Africa back on its feet. Understanding how Zimbabwe got to this point is key in trying to extricate the country from its current mess.
From Independent to Radical Land Redistribution Mugabe became an international darling of the Left because of the insurrection his Zimbabwe African National Union – Patriotic Front (ZANU-PF) carried out against Rhodesian prime minister Ian Smith during the Bush Wars. Relentless pressure eventually forced Smith to end white minority rule and change the name of the country to Zimbabwe-Rhodesia in 1979. This was not enough for the insurrectionists, however, who pressed on and eventually compelled the government to call elections in 1980. Robert Mugabe, then the leader of the Zimbabwe African National Union, came out victorious in the 1980s elections for prime minister and instantly renamed the country Zimbabwe. From 1980 to 1987, Mugabe served as prime minister. He later became president and ruled until he was ousted in 2017.
Since he was busy consolidating his rule, Mugabe embarked on gradual intervention in his first few decades in office. However, he always had land reform at the back of his mind and was simply waiting for the right moment to institute it. The Zimbabwean leader met his first roadblock after voters rejected one of his forced land confiscation schemes in 2000. But this did not stop the Zimbabwean demagogue. Mugabe took a radical turn by expropriating the properties of white landowners and giving them to veterans of the Bush Wars or to people who alleged to have veteran status in 2000. Through political and paramilitary means, Mugabe was able to confiscate twenty-three million acres of land without any form of due process or compensation.
Hyperinflation Enters the Picture No economic populist program is complete without its own inflationary agenda. Mugabe was more than willing to turn the Reserve Bank of Zimbabwe into his personal printing press and pursue the most devastating hyperinflationary monetary policy in recent memory. Zimbabwe reached comic book levels of inflation in 2008, when hyperinflation became well established at a peak of 79.6 billion percent. After completely eviscerating the value of the local currency, Zimbabwe effectively “dollarized” and switched to different currencies such as the dollar and the African rand.
To make matters worse, the Zimbabwean government tried to combat inflation in the most futile way possible — by enacting price controls. A policy that has failed from Ancient Rome all the way to contemporary Venezuela, price controls predictably exacerbated already existing shortages and further hastened Zimbabwe’s economic debacle.
By the time Mugabe was deposed in 2017, 70 percent of Zimbabweans lived in poverty, as the country’s economic output had fallen by half since 2000 and inflation had obliterated Zimbabweans’ savings. This was reflected in a 15 percent drop in real per capita income since 1980. Zimbabwe’s vaunted agricultural sector experienced a notable implosion, as agricultural production nosedived by $12 billion from 2000 to 2009, according to a report from the Commercial Farmers Union.
Regime Change Will Not Guarantee Future Success Mugabe’s successor Emmerson Mnangagwa already has his hands full with inflation over 600 percent and public sector unions already demanding dollar-indexed salaries. The road to reform will not be a walk in the park given that Mnangagwa himself is no saint. He is already promoting an agricultural program that doles out subsidies to Sakunda Holdings, a company controlled by Kudakwashe Tagwirei, a known ally of Mnangagwa and the incumbent ZANU-PF party. Although Zimbabwe has left the realm of hyperinflation, it continues to have structural problems that impede market reforms.
This is often the case in developing countries, where the succeeding government — despite all its promises and vows to break free from the preceding government’s corruption — ends up breaking down because of incompetence and corruption in its leadership. Due to the preponderance of Marxist- and Keynesian-inspired ideas, the window of ideological options is quite small for many developing countries. A large portion of high-ranking officials in developing countries have been instructed in these schools of thought at Western universities abroad — where these ideas have not been fully implemented. However, many developing countries are fertile soil for destructive policies such as Keynesian or Marxist populism. Widespread wealth gaps between the politically connected haves and the disconnected have-nots, general ignorance about the implications of interventionism among the public, and a predatory political class that is shielded from popular backlash makes these countries susceptible to mass intervention. When the West can’t implement some of its economically illiterate ideas at home, it finds willing importers in the developing world.
Can Zimbabwe Look to Other Countries for Inspiration? An ominous future awaits the sub-Saharan country. Its neighbor South Africa is going through its own trials and tribulations, as land redistribution has become a major political issue in recent years. The only good news for Zimbabwe is that its neighbor Botswana provides an alternative path to economic prosperity. Botswana has taken an atypical route in economic development by stressing free trade, low foreign aid, and institutions that respect private property. Botswana, along with Chile, appears to be a radical exception rather than the rule in the developing world. Ideally, Zimbabwe would completely depart from the Mugabe legacy and replicate Botswana’s policies.
Suffice to say, nothing short of an economic exorcism is needed in Zimbabwe. Based on what President Mnangagwa has done so far, it doesn’t seem that Zimbabwe is actually serious about making tough reforms.
Listen to the Audio Mises Wire version of this article.
One of the most enduring justifications for state intervention in an economy is the concept of wealth inequality. As the story goes, just 1% of the population owns roughly half of the wealth in the world. This is used as justification for a long range of programs, such as welfare, the graduated income tax, and multiple components of the Green New Deal. However, the problem with this narrative is it fails to address two major questions:
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What are the components of that wealth?
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Who are the primary beneficiaries of that wealth?
Wealth Isn’t Uniform To begin, we need to first understand how wealth is defined. Wealth, in investment terms, is defined as “the value of all the assets of worth owned by a person, community, company or country.” The underlying issue of the definition of wealth is within the concept of value. Value is not an objective concept; each individual will value every good or service on the planet differently based on personal interests. This is best defined in the Paradox of Value. Water is objectively more important to survival than a sack of diamonds; a person living by a river would trade truckloads of water for a sack of diamonds while a person stranded in the Sahara would eagerly trade a sack of diamonds for a CamelBak full of water. This is the underlying purpose of trade — to obtain something of relatively low supply locally for something of local abundance.
The problem here is that such valuations are subjective and highly reliant on meeting specific conditions. If we look at the components of wealth, the wealth of the 1% is made up predominantly of business ownership stakes .
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Business ownership is typically represented by stock share in the company. How a person’s wealth is defined here is taking the current listed market price of the stock and multiplying it by the ownership stake of that individual. The problem with this definition is how equity is traded. The value of equity you will see on the Dow Jones is not the value of every share in existence. It is, instead, effectively the last marginal transaction for that particular company. So if Amazon is listing at $1,800 per share, all this means is that someone out there sold one or more shares for $1,800 to someone else. This does not mean that if someone waved $920 billion at the market, they’d be the sole owner of Amazon.
The vast majority of the ~500 million outstanding shares of Amazon are valued more than the listed market price by the holder. To get Jeff Bezos to part with his roughly 20 million shares would require a lot more than $37 billion. However, this does not mean Jeff Bezos is richer than advertised. Conversely, people who don’t own Amazon stock value it below the $1,800 market price. If Mr. Bezos were to face a life-or-death situation in which he needed to pay $37 billion in cash, he would be lucky to come up with a small percentage of that as attempting to dump that many shares on the market at once would collapse the market price.
The issue here is that maintaining high levels of wealth requires never trading in the goods. The only way the wealthy can remain wealthy is to never convert their equity into usable liquidity. While a single share of stock is, in accounting terms, classified as a liquid asset, a large block of shares is about as illiquid as owning a skyscraper or NFL stadium. Because of this, the wealth of the 1% is largely illusory since they realistically can’t use it for anything lest they destroy its apparent value.
Conversely, the bottom 99% posses roughly 15% of their assets in some kind of easily liquid form and their stock assets are significantly more liquid than those in the top. A person with $50,000 in assets can easily liquidate their property without causing a blip in the market pricing. In terms of assets that can be used without suffering a value impairment, the top 1% really only owns about 6% of the assets. While this is still unequal, it’s nowhere near the gaudy 50% frequently presented.
Who Really Benefits One can easily counter this to say that those assets still primarily benefit the wealth individual and the rest of us are stuck holding the bag. However, this is also not held up as true. If we use the concept of CEO pay disparity, we can demonstrate who really benefits from that wealth.
Take Wal-Mart, a favorite target of unfair wage practice claims. The company’s CEO, Doug McMillon, is accused of earning 1,180 times more than the median worker with an annual compensation package of $22.8 million. To a single individual, $22.8 million seems like a lot of money. But consider that Wal-Mart also has in the order of 2.2 million employees. If the CEO were to take a $1 salary and the company were to spread that over each worker, the worker would receive a one-time bonus of $10. Mr. McMillon would quickly go bankrupt just trying to buy dinner for each employee just once.
If we look at Wal-Mart’s 2018 10-K report, the company produced revenues of $514 billion. Of that, $385 billion was a direct expense, primarily sent down the product chain to suppliers to pay for their workers and suppliers and so forth. Roughly $50 billion went to store workers. Another $107 billion was on SG&A, which can be assumed to be almost entirely labor related, either direct Wal-Mart employees or outside companies paying their workers.
All-told, an estimated $490 billion of those $514 billion in revenues ended up in the pockets of a direct worker somewhere in the world, supporting untold millions. Just the direct Wal-Mart employees collected an estimated 20-25% of the total revenues. The total C-Suite compensation package doesn’t even register as a rounding error. Investors got a dividend of $6 billion, or just 1% of that. It’s important to note that many Wal-Mart investors hold their share in individual investment accounts or pension systems, which also benefit line workers.
The wealthy owners of Wal-Mart, the Waltons, only see 0.2% of the economic activity generated by the company. That's a far cry from the 95% paid to workers and the remainder going to retirement pension accounts for individuals. The workers, or the 99%, are overwhelmingly the beneficiaries of all that wealth the Waltons formally own.
Why the Rich Are Good for Us Ultimately, these extremely on-paper wealthy individuals have been of an immense value to the rest of us. Without someone taking the risk to form a business, to collect all of our disparate skills that, alone, are worthless and combining them into an organization, we would not be living in a world where poverty and hunger continues to collapse and some countries have gotten so wealthy that people with broadband internet and smartphones are classified as impoverished. This is entirely thanks to all those rich people who are only asking to keep a very small portion of the production their assets produce. Attempting to destroy this with redistribution schemes will ultimately be harmful to the 99%.
Listen to the Audio Mises Wire version of this article.
Most of us have heard the arguments from the Left on the emancipatory power of the Universal Basic Income Guarantee to free us from the chains of work, stress and poverty, and to liberate the creative impulses of man. We also hear from conservatives like Charles Murray, who stress that welfare cliffs under the current system create a poverty trap, where by earning more people will take home less, creating a permanent disincentive to work which the UBI would partially solve.
There is a contingent of libertarians who also hold the view that the UBI is better than the current system. They highlight the fact that bureaucratic costs will be lower and, theoretically, many public sector workers could be axed from welfare departments — reducing the overall size of the state. Government outgoings on law enforcement could be reduced, if the UBI leads to a drop in poverty-driven crime. And, if people are already receiving the basic means of survival, we can cut regulations around hiring and firing people and labor laws, since workers, faced with poor conditions, will have the f-you money to walk away from them. What’s more, if people can shop around for services currently provided by the government then some programs can be cut into the bargain.
Ultimately, since people would be given their basic income directly to spend as they please, it would preserve the market economy relative to more intrusive forms of government assistance or central planning, where officeholders and bureaucrats attempt to organize production “on behalf of the poor” (or “the workers” or “the people”) leading to a disastrous misallocation of resources and authoritarian dictatorship.
At least that's what the pro-UBI libertarians claim.
I want to present four alternative arguments for why we should not be unduly taken by these views. They are not the tried and tested arguments such as, “The UBI will place a huge tax burden on working while rewarding idleness,” or “The UBI will cause spiraling inflation!”
While those have some validity, we have all heard them before.
These are my arguments appealing specifically to libertarians rather than economic progressives.
One: Even if the UBI will allow us to replace all sorts of systems and reduce the size of government, that will not be the end of the story. UBI will inevitably grow arms and legs.
After the UBI is instituted, it will only be a matter of time until we hear this group or that group should be earning an even higher basic income. “I am disabled, I should have a higher basic income, some may say. Or other may object "All my relatives live in a more expensive city, so I need a higher basic income." And so on. Then people will advocate for a higher UBI for the elderly, disabled, people who live in areas where the rents and costs of living are high, or where they have to travel long distances to work, and so on. Ad infinitum.
Any group which represents a large enough voting block can influence the government to add supplements to their basic income, and there is no compelling reason for any administration not to cater to them to buy votes. On the face of it the argument will sound quite compelling. I mean, why shouldn’t vulnerable groups and those who have to pay more to live get a supplement? It’s only fair, right? But then we are back to towering administrative costs. We're back to needing public sector workers to figure out who is due what, and to check that people aren’t abusing the system. We'll need public money for lawyers and judges to prosecute abusers.
Two: Perhaps the scariest aspect of it all is that in most cases when the government creates handouts, there is always a group that stands to benefit and another that stands to lose. With the Universal Basic Income it seems on the face of it that there is no “out” group. Everyone is in on the action.
But that's not really the case.
The state, policymakers, and government employees will benefit relative to everyone else.
After all, the UBI legitimizes government and brings everyone into a system which they could otherwise often ignore. The state is provider, and each of us becomes its ward.
Once this relationship between individual and state has been established it will be hard to go back. We will enter into a frightening era where the UBI can be weaponized by the government to threaten people with benefits sanctions for not behaving as our rulers see fit. Criminals first. Then unpopular groups. Then political dissidents with opinions like our own. We will be threatened into silence with the threat of the removal of our UBI.
People may be forced to accept a mandatory government ID card in exchange for their UBI. Then they will be asked to show it everywhere they go, and even refused access to venues, events, public transport, or even to the roads. In a time of war you will be asked to enlist or risk losing your UBI for denying your patriotic duty.
It will be worst for the people at the bottom of the economic ladder. They will be forced into a far worse position, particularly if they have been lead, by their access to a basic income, not to pursue economic skills that would make them self-sufficient, or to lose the ones they already have because they have not needed to use them in a very long time. They will be completely at the mercy of the state under the threat of poverty or even starvation because they have no hope of being able to provide for themselves or their families.
This would make the basis of a good dystopian science fiction novel, but sadly I’m only too convinced that this is what would end up happening if those in power were to be put in charge of the purse strings.
Three: The UBI will not get rid of those who constantly call for ever higher levels of social benefits, and total numbers of people who "need" UBI will not decline. This is because a UBI will not, and cannot, address the underlying causes of poverty and inequality — which is that poor people have low skills and no capital.
All that is happening is money is being taken from the deep end of the swimming pool and shoveled into the shallow end (with large quantities of it being spilled along the way). Nor is this a zero-sum game. The movement of funds from one end of the pool to the other results in a new loss. That is, there will be a huge loss of capital investment resulting from the UBI: taxing the rich to pay for the Basic Income means they will not be able to invest in machines, factories, and technologies which make everyone richer by reducing the cost of goods and services. Worker productivity will stagnate or even go down. This means less wealth to redistribute overall.
Four: With the UBI, the state is potentially handing out a large sum of money each month to people who may spend it to ruin their own health, or destroy their lives. Individuals with substance addictions, gambling problems or bad spending habits which get them in trouble. People who are addicted to computer games or Facebook might benefit from getting out to work in a bar or cafe and mingling with the public for some occupational therapy. But the UBI will allow them to isolate themselves further. Thus, in many cases with the UBI, payments may not actually be helping people. Recipients lives could be made worse by payments.
It takes a pretty callous person to say, “Well, it's their life, they’ve got a right to ruin it. Let them take out their UBI and spend it on hard drugs if they want to.” While it's true people ought to be able to spend their own money as they see fit, how they spend other people's money is another matter. Handing a suicidal person a bottle of sleeping pills might not be identical to murdering them, but it’s still highly questionable ethically.
[For more, see Universal Basic Income — For and Against (with a foreword by Robert P. Murphy).]
One of the most common debates that has occurred in the United States for the past six decades is the discussion of the poverty rate. As the narrative goes, the US has an unusually high poverty rate compared to equivalent nations in the OECD (Organisation for Economic Co-operation and Development). Although it’s true that the measure of poverty is flawed, especially when compared cross-nationally, this piece addresses the reasons why the poverty rate in the US in particular has not improved.
If we look at the graph below, we see that official poverty rates fell 44 percent between 1960 and 1969 then spent the next fifty years fluctuating between an 11 and 15 percent poverty rate. It’s this lack of improvement over a five-decade period that is interesting, especially considering that poverty rates had consistently been dropping for over a century.
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Incentive Problems One of the key problems is that during the 1960s the Great Society programs were implemented, particularly the War on Poverty. Over this period, spending on anti-poverty programs exploded five times in inflation adjusted dollars, going from 3 percent of public spending to 20 percent between 1973 and today.
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Yet the poverty rate stubbornly ignored all this lucrative expenditure. A key problem is that none of these programs built in an incentive system to graduate people off the assistance. Push systems, systems where a person is ejected from assistance if they prove unwilling to improve themselves, are nonexistent, while pull systems, like job training programs, are ineffective at best. Without these systems, people neither have the tools nor the drive to exit these programs.
These programs, in effect, have generated a culture of dependency. Out of sixty-nine welfare programs that the government operates, just two, EITC (earned income tax credit) and the child refund credit, require any kind of employment and even then are tax discounts. Further, the expansion of various handout programs has successfully eradicated the stigma of public assistance, removing the social pressure to improve and exit. When nearly half the population receives public assistance, not including individuals receiving a paycheck for public sector work, people view it as normal and acceptable.
Public Sector Interference For those who do legitimately want to break the cycle of dependency, the public sector isn’t making things any easier. One of the major problems with the welfare structure is that it requires funding in the form of taxes, debt, and inflation. The tax structure necessary to fund redistribution schemes naturally creates a Tax Dead Zone. What this dead zone does is create an income range where, after all taxes and benefits are accounted for, earning an extra dollar in gross income results in either no change or a reduction in net income.
Essentially, the extra dollar in earnings is taxed at 100 percent or more, penalizing the current recipient for attempting to exit public assistance. This dead space is nearly $20,000 in range, meaning that if the person estimates they’re unable to consistently earn above roughly $60,000 a year, it’s better to not try and to stick around $18,000 a year since the net benefit structure at $18,000 results in more resources to live on than at $45,000. It is mathematically impossible to design a welfare and tax structure that doesn’t, at some point, penalize a welfare recipient for earning more money.
Another insidious trap is the regulatory structure. People who are current welfare recipients tend to have few or no job skills. This is particularly true for younger individuals who haven’t had a first job yet. What the regulatory state does is drive up the cost of employment. When employment costs are raised, be it through a minimum wage or workplace rules, a higher skill level is demanded from the worker to generate sufficient revenues to justify the cost. If the applicant isn’t sufficiently skilled, they won’t get hired.
Unemployment can create a cycle of further unemployment in this environment. Since skills degrade over time, a person who elects to take twenty-six weeks of paid unemployment instead of a temporary lower-skilled role will be at a major disadvantage. Long-term unemployment becomes a trap, since the individual will no longer possess sufficient skills to cover the cost in wage mandates, taxes, and regulatory impositions of hiring them. If public unemployment benefits didn’t exist and the state didn’t artificially inflate the cost of employment, this individual wouldn’t have been lured into taking a six-month vacation and wouldn’t have struggled to justify the costs of their employment.
The impacts are particularly bad in terms of generational poverty. The minimum wage has a strong negative impact on youth employment rates. Teens who are unemployed enjoy significantly lower lifetime earnings and are more likely to be unemployed as adults compared to their peers who held a part-time job. This, in turn, leads to greater utilization of public sector benefits.
Incentives for Government Based on its poor track record, one wonders if government even wants to solve the poverty problem. Seattle, for instance, spends roughly $100,000 per homeless resident of the city on homeless relief programs. The major beneficiaries of this public largess are charity organizations that claim to assist the poor but use that money to pay themselves salaries in excess of $200,000 for a single executive. Major agencies, including the Department of Health and Human Services, employ tens of thousands of people.
What would happen should poverty and homelessness be eradicated? No more $200,000 salary. No more job for tens of thousands of people. No more $8 million temporary tents.
Poverty and homeless assistance has turned into a big business. We now have a Homeless Industrial Complex, and poverty assistance has become big business. The public sector appears to be fully invested in ensuring that poverty and homelessness persist. Without the homeless, what do we need with a Low-Income Housing Institute? Without the poor, how could the Department of Agriculture justify $100 billion a year in the farm bill? There is little evidence that the state cares to solve the issue, only caring to make homelessness and poverty a viable lifestyle choice.
The Future The state has, by accident or by design, created a permanent underclass. Radical elimination of regulatory impositions and the elimination of the minimum wage are merely the first steps toward solving the problem of poverty. The underlying issue is that the transition into a nation that can truly eradicate poverty will be painful. People trapped in public dependency won’t develop skills overnight, and odds are that they may never develop the skills needed for well-paid employment. Breaking habits is difficult and the sad reality is that catching up is a myth. People behind now will always be behind; if there were a magical means to accelerate skill development, everyone would be using it and the same person would still be behind.
But we can lay the groundwork for future generations not to have to battle through these public sector barriers, and we can return to the poverty improvement rate seen before the Great Society disrupted the process.
Democratic socialism is in the news again. Following Alexandria Ocasio-Cortez’s stunning victory, helping her become a darling of the mainstream media, Americans are becoming interested in democratic socialism again – a philosophy that involves voting to steal your stuff. Two key planks of democratic socialism are to rail against the rich and promise everything for free, which then leads to the next question: Who’s going to pay for all that free stuff?
Building upon her national spotlight, Ocasio-Cortez recently appeared on The Late Show with Stephen Colbert to discuss her political brand and a wide array of issues important to her and socialists everywhere. But there was one moment in the interview that opened a can of worms.
She told the alleged comedian:
“For me, democratic socialism is about — really, the value for me is that I believe that in a modern, moral and wealthy society, no person in America should be too poor to live.
I think that no person should be homeless. If we can have public structures and public policy to allow for people to have homes and food and lead a dignified life in the United States.”
Ocasio-Cortez, may be a politician with good intentions. But that's the most dangerous type of politician. She suggested two interesting things: the poor are destitute, and poverty can be cured with even more government.
Let’s explore further.
What Is Poverty in America? There are three points that the left likes to make: the poor are getting poorer, the U.S. has the highest childhood poverty rate, and 32 million Americans are impoverished – higher than when the first bullet in the War on Poverty was fired.
How dare the U.S. create such horrific conditions that are reminiscent of Charles Dickens novels.
If you’re indigent in the U.S., then you’re better off than most people in the world. A hipster sporting a Che Guevara t-shirt and drinking a Starbucks latte would scoff at this assertion, but it is the truth.
Income inequality is a myth , while income mobility is still a thing. Yes, it is true that the top 1% are getting richer, but the poor and middle-class are becoming prosperous, too. Why is this a debated fact? The problem is with how the data is compiled and analyzed.
When we study Census Bureau data or any other information emanating from the government, we simply compare rich Americans to poor Americans in one year and the next. The better route is to examine the data over an extended period. When you do, the bottom 20% witness their incomes rise, and most Americans will see their income status change throughout the years – half of the country will be in the top 10% of incomes for at least one year, while two-thirds of Americans will park themselves in the top 20% for at least two years.
Now, are American children worse off than Asian and European kids? Not quite. When Sanders and others make that claim, it can easily be disputed if you take a look at Organisation for Economic Co-operation and Development (OECD) figures. The U.S. is ahead of Russia, Israel, China, Spain, and several others – Denmark and Finland have the lowest.
But how could the biggest economy in the world not eradicate poverty for both adults and children?
Well, perhaps it is time to examine what being poor in America is like compared to other places.
It is correct to state that the U.S. has a higher poverty rate than other developed nations. However, the American poor have higher median incomes than in other countries, and the poverty income in the U.S. matches the median income in Spain, the U.K., and Japan. Plus, American living standards are higher for the poor than the impecunious residing in the U.K., New Zealand, France, and Japan.
Let’s look at what it’s really like to be poor in the Land of the Free:
80% have air conditioning.94% have Internet access.75% have an automobile – a third have two or more vehicles.Half of poor families have a video game system.66% have cable television. What about the basic essentials, like food and housing? That’s easy enough:
83% of poor households reported having enough to eat.96% of underprivileged families reported their children were never hungry at any time.42% of poor households own their homes. Moreover, the average poor American has more living space than the average middle- or high-income person in the U.K., France, and Sweden. Also, consumption of vitamins and minerals is the same as the those in the wealthier brackets.
Should an American fall on hard times, they have access to a generous welfare system, paid for by the private sector. Despite claims that the U.S. allows the impecunious to perish on the streets or starve in their homes, the government has spent trillions of dollars over the last 50 years on entitlements, healthcare, and social-benefits programs.
The rectitude and efficacy of welfare can be debated, but the government gives citizens money to purchase unhealthy food and smartphones – and a basic income guarantee is all but inevitable . That’s how wealthy the U.S. is.
Originally published at Liberty Nation.
The issue of income and wealth inequality has gained public awareness recently, becoming an important economic problem in our time. Unfortunately, the quality of the public debate about this topic remains very poor. In this piece, I would like to point out three main shortcomings of the problem at hand.
Good and Bad Inequality First, people do not differentiate between good and bad inequality. There is nothing inherently bad about inequality, since it’s, after all, only a formal characteristic of the relationship between certain values, like incomes of different people. What really matters is the reason of the inequality. Inequality that results from “rent seeking” and lobbying the government to implement beneficial regulations for the influential and already wealthy interest groups (you may think of banks “too big to fail”, farmers demanding subsidies or domestic industries supporting import tariffs) is obviously bad. Inequality caused by the quantitative easing programs, which increased prices of financial assets held by a relatively small number of wealthy individuals, is also not worthy of praise.
However, inequality resulting from economic progress does not deserve to be condemned, does it? During the Industrial Revolution, workers moved gradually from agriculture to manufacturing, which initially widened the inequality. But this is how the progress happens – it never occurs smoothly, as not all people take advantage of new market opportunities to increase their productivity at the same time. The current upswing in inequality also seems to be driven by technological progress, inter-sectoral reallocation of labour (from manufacturing to services), and globalization. The question whether we should oppose it equals to question whether we should be against progress itself. I hope it’s clear now that inequality may be either positive or negative, depending on its causes, and that the bad ones are not necessarily driven by the free-market capitalism, the favorite whipping boy for all the misery of the world. Instead, it’s crucial to understand that the rise in inequality observed recently in some western countries may result from many causes, including the global economic growth lifting people out of poverty all over the world.
Are People Sinophobic? This leads us to the second weakness of the public debate about the inequality: many people adopt too narrow, Western-oriented perspective. Just look at the chart below.
Chart 1: Change in real income from 1988 to 2008 among percentiles of global income distribution
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Source: B. Milanovic, 2013, Global Income Inequality by the Numbers: In History and Now – An Overview , downloaded from Wikipedia .
As one can see, almost the entire bottom 75 percent has seen its real income rise between 1988 and 2008 – and some percentiles made really significant gains. Although it clearly shows that globalization benefited enormous number of people, intellectuals and the press are focusing on the working class in the West, whose real income relatively stagnated. It’s an unpleasant fact for these people, for sure. However, the funny thing is that they are between the 75th and the 90th percentile of the global income distribution, which mean that they belong to a global upper-middle class. From the global perspective, the current buzz about rising inequality is not a sign of concern about the poor at all – it is a worry about the income of an elite disturbed by the increased supply of low-skilled workers from developing countries. Surely, one can criticize the rise in inequality due to globalization – but it implies an assumption that the relative economic situation of the working class in developed countries is more important that the absolute increase in real incomes of Chinese or Indians. It turns out that the authors of Oxfam’s reports and other people who supposedly take care of human misery actually suffer from sinophobia.
Inequality or Poverty? This is connected to the third cardinal sin of the contemporary debate about the income inequality, perhaps the most important one. People often confuse inequality with poverty, although these terms mean something different. The former occurs when people have different incomes, while the latter is when people do not receive enough money. Many people criticize the inequality, but what is really disturbing is not the fact that some have lower income than others, but rather that some has very little.
Fortunately, this is where capitalism enters the scene. Let’s see the chart below, which paints the spectacular reduction in the global extreme poverty over the last few decades.
Chart 2: The percentage share of the world population living in extreme poverty, from 1820 to 2015.
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As one can see, in 1820 almost all people in the world struggled for less than $1.90 per day. One hundred and fifty years later, still 60 percent of the global population lived in extreme poverty. Since then, the ratio declined to 9.6 percent. It means that billions of people have been taken out of extreme poverty. This progress is mind-blowing, especially for people who blame capitalism and ‘neoliberalism’ for the rise in inequality, although it is hardly surprising for economists who know that free markets enable economies to grow. Indeed, poverty was the default state of the humanity. What enabled for its reduction was simply to let poor people get richer by protecting property rights, liberalizing markets, and freeing trade.
This is how capitalism works: it generates wealth through free exchanges and accumulation of capital which increases the labour productivity. Therefore, the call for the greater economic equality for its own sake not only diverts us from the issue of poverty, which is the real problem, but it may be even counterproductive and hamper the economic growth — the only genuine means of eradicating poverty.
Listen to the Audio Mises Wire version of this article.
With all the attention commanded by the presidential campaign, election, and aftermath, plus the ongoing covid-19 story, many other issues have faded into the background. Though escaping the headlines, some of these other issues will be with us for a long time, and contributions to the public discussion of such issues often have a long-term impact.
One such issue is a long-time favorite of progressives: income inequality. The most influential recent addition to the discussion is a study announced by the renowned RAND Corporation in September. RAND’s detailed, thorough, meticulous study about income inequality in the United States is titled Trends in Income from 1975 to 2018.
The author’s main thesis is that there has been a wider distribution of incomes in the last four decades than in the three previous decades—the postwar period (1945–75). This is the author’s way of saying that the richest Americans’ incomes have been growing faster than the average incomes of the nonrich.
I don’t dispute the author’s conclusions. But the proper response to that conclusion is: So what? The mathematics may be correct, but there is nothing about disparities in income that is inherently unjust. First of all, there is no known “right” distribution of income. Secondly, the key question to ask about any particular distribution of income is whether the factors that caused it are just or unjust.
To elaborate: to assume that the distribution of Americans’ incomes in the 1946–75 period is “right” or “normal” or “better” or “fairer” than what has occurred or will occur in other periods is completely arbitrary. In a market economy, there will be fluctuations—sometimes rather large fluctuations—of income distribution, each of them reflecting current economic and political conditions. To pick a certain timeframe and designate it as “the way things are supposed to be” is pure whimsy, not science.
The causes of differences of income can be nefarious or benign, unjust or just. They are unjust when political powers rig the system so that the political insiders benefit at the expense of everyone else. Think of eighteenth-century France and contemporary (socialist) Venezuela, for example.
Those who protest how unfair it is that some Americans have gotten so rich (most prominently politicians like Bernie Sanders and AOC) do not understand the concept of profits nor how profits are earned. They are under the spell of what the great economist Ludwig von Mises called “the Montaigne dogma”—the fallacious notion that “no profit whatever can possibly be made but at the expense of another” (Montaigne’s exact words). In an unfree society, such as France under Louis XVI, there is a zero-sum world in which the poor were poor because the rich were rich. But that is a gross misrepresentation of a market economy based on private property and voluntary choices.
The likes of Zuckerberg and Bezos et al. earn income and accumulate profits in exchange for having provided things of economic value to their fellow humans. They have no power to force anyone to buy their products. People willingly give their money to “rich corporations,” because they value what they are purchasing more than they value the money they are paying; were it not so, the transaction would not take place. A free society with voluntary economic exchange is a positive-sum world. In a market economy, both parties to transactions profit from exchange.
On the downside, many Americans’ incomes have fallen due to lifestyle decisions. One startling example: demographer Nicholas Eberstadt’s “10 million man army” of working-age American males who have voluntarily dropped out of the regular job market, choosing to sponge off family or friends. Their incomes have fallen to negligible levels, thereby adding to the widening gap in incomes. The rich didn’t make them choose this lifestyle. (For more on social and economic pathologies, see Charles Murray’s 2012 book Coming Apart: The State of White America, 1960–2010. Murray documents widespread cultural shifts—none being imposed on the poor by the rich—that are highly correlated to lagging prosperity.)
We can help those in need through both private efforts and eliminating public policies that retard or distort economic production (and sadly there are many of those), but let’s not persecute the innocent. As Thanksgiving approaches, we should be thankful to society’s economic benefactors rather than condemning them because of the wrongheaded ideology of egalitarianism, which is nothing but irrational disdain for the individual economic differences that are the mainspring of economic progress for all.
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As the election is well underway, the United States’s political discussion has intensified about the living standards of the poorest in the country and the solution to their poverty. The Democrats, as usual, have proposed extended welfare benefits and greater government aid to poor families.
This experiment began in the 1960s when President Lyndon Johnson initiated the War on Poverty programs. As he signed them into law, poverty levels were already plummeting, according to data collected from the Census Bureau, thanks to substantial increases in productivity and wages. Since the 1960s, although approximately $20 trillion have been spent on the programs, poverty levels have basically flatlined, often ticking up due to the occasional recession.
There is a fundamental reason for this. The War on Poverty programs lowered the relative cost of single parenthood in terms on poverty. Under the War on Poverty, subsides to single parent families became greater than two-parent families. This is why, since the programs were initiated, rates of single parenthood have ballooned. In 1960, less than 10 percent of all children were born out of wedlock in the US. In 2008, it hit 40 percent.
Single parenthood is a potent predictor of poverty. According to the Census Bureau, in 2019 the poverty rate for two-parent families was estimated to be 5.2 percent. The estimated poverty rate for single parent families, however, was 25.9 percent. The Heritage Foundation puts the numbers at 6.4 percent and 36.5 percent. It is also well documented that children who grow up in single parent households are much more likely to suffer psychologically and, when they grow older, commit crime, as documented by a study published in the Journal of Political Economy. Getting single motherhood to drop (or, at least, stop rising) would require reforming the welfare system: either by withdrawing welfare benefits from single parent families or increasing them for two-parent families. But either way, the message is clear: one of the side effects of welfare is high rates of single parenthood, which can be very damaging. Take a look at Europe. As described in a 2012 report (page 155) conducted by the Institute of Economic Affairs (IEA), single parenthood levels are very high in Europe as well—a symptom of welfare.
Another strong predictor of poverty in the US is a lack of full-time work. According to the Bureau of Labor, in 2016 the percentage of full-time workers who were "working poor" was only 3.1 percent, compared to 12.2 percent for part-time workers. As the report itself notes: "full-time workers continued to be much less likely to be among the working poor than were part-time workers." This problem is once again attributable (at least in part) to welfare, because workers might lose incentives to work full-time. This happens when welfare payments are reduced or withdrawn when the recipient obtains full-time work. Here, reform would be vital; it is why benefits should never be more profitable than a full-time job. The implementation of work requirements for recipients would also make a difference. Reforms like this were made during the 1990s under President Clinton. As a result, in 1994, 40 million Americans lived below the poverty line. By 2000, it had approached 30 million.
Of course, it is not always easy to find a job. But this can be improved through the removal of policies that hinder hiring, such as high taxation rates and high regulatory burdens for employers.
Many will suggest that raising the minimum wage will alleviate poverty for those with jobs. This is wrong on every level. The people hit hardest by this policy will be the very people it intends to help: low-wage workers. According to a 2016 analysis conducted by the Heritage Foundation, a $15 minimum wage, for example, would cost the economy up to 7 million jobs. Minimum wage jobs are merely a means to an end and are the bottom of an ascending socioeconomic ladder. Its why over 76 percent of all minimum wage workers are between the ages 16 and 34. Cutting these off would inevitably cause poverty, because it would become increasingly difficult to climb the wage ladder up to prosperity.
A third reason for poverty in the US is, like in most countries, the high cost of living in many areas. This often comes as a result of the government imposing regulations on basic, necessary commodities, which drives up their costs. Housing is a notorious example. A 2019 study showed that housing regulations limited aggregate US growth by a third between 1964 and 2009. A reduction in regulations would increase the rate of construction, which would lead to a decrease in costs. Just compare the housing costs of California and Texas. The difference is that while California’s housing market is heavily regulated, with zoning rules and rent control, Texas’s is relatively free.
A similar phenomenon was witnessed in Britain in the 1930s: during the Great Depression, the housing market was dramatically deregulated, which led to a boom in construction (it was one of the reasons why the UK economy only had two consecutive years of negative GDP growth). To put this into context, last year, for every thousand people in the UK, three houses were built. During the Depression, the rate was almost doubled. Housing deregulation will increase construction, and therefore lower costs, because of an increase in supply of housing. Lower costs will take burdens off working families and free up their purses.
When it comes to housing, though, at least the US is at an advantage in terms of housing cost. The US ranks highly in terms of housing affordability, with the average American family spending 19 percent of their expenditure on housing—lower in than most European countries. Most houses also enjoy basic facilities such as indoor flushing, etc.—only 0.1 percent lack them. America ranks highly in terms of rooms per person (2.4). The only country which is higher is Canada, with 2.6 rooms per person. However, there is still clearly room for improvement.
If we want to lower poverty in America, we ought to adopt these three policies: reform the welfare system so it encourages intact family formation; reform the welfare system so it encourages full-time work; and lower the cost of living through the deregulation of important commodities like housing.
Thanks to the recent efforts of such figures as Democratic Presidential candidate Andrew Yang and British Shadow Chancellor John McDonnell, the issue of Universal Basic Income (UBI) has been back at the forefront of the public discussion on economic issues, along with the various arguments and justifications for introducing such a policy. While many of these justifications have become quite familiar over the years of waxing and waning interest in UBI, it is interesting to note the recent surge of interest in one particular argument which sounds more like something from a science fiction novel than an economics textbook.
This argument runs roughly as follows: In the not too distant future, rapidly advancing technology will allow robots and artificial intelligence (AI) to perform many of the jobs now being done by humans, and to do so more cheaply and efficiently than humans ever could. This will result in robots/AI replacing humans in almost all jobs, making the vast majority of people permanently unemployed, and without Universal Basic Income how will they (the people) be able to keep food on their tables?
Of course, the idea that advances in labor saving technology will lead to catastrophic unemployment and declining living standards is hardly new, arguably dating back to ancient Greece or earlier, and economists (not to mention the facts of history) have been refuting the idea for nearly as long as economics has existed as a self-conscious science.
However, as familiar as the generally luddite tone of this new argument for UBI may seem on its surface, it nevertheless does have one key difference from the more traditional arguments against labor saving technology. This difference not only sets the new AI scaremongering argument apart as meaningfully different than the arguments which have gone before, but also highlights a fundamental misunderstanding its proponents suffer from, concerning the very nature of what a market economy is, and what drives it.
What marks the AI scaremongering argument as new and meaningfully different is its altered assumptions about the breadth of different jobs which the new technology would be capable of usurping from human workers. In previous eras, even the most hysterical denouncers of labor saving technology shared an unspoken understanding of the limited capabilities of the technologies they opposed. When the spinning jenny was introduced in the 1760s, they may have argued that it would cause unemployment in the textiles industry, but none of them would have claimed that the same machine would cause mass unemployment among butchers, lawyers, or pub landlords. When automobiles became widely available, they may have argued that buggy whip manufacturers were at risk of permanent impoverishment, but few would have argued that the existence of cars posed an equal threat to the jobs of teachers, waitresses, or doctors.
However, given the near-total lack of public understanding of what AI actually is and what it’s capable of, not to mention the irresistible temptation to sensationalize modest scientific advances into eye-grabbing and alarmist headlines, the new AI scaremongers have allowed their imaginations to run wild when speculating as to which jobs are under threat from this mysterious new technology. The result is that they, and much of the public, seem to believe AI is (or soon will be) capable of almost anything they can imagine, in the same way that so many charmingly naive 80s movies portrayed home computers as essentially "omnipotent science magic."
It is this assumption that AI and robots will soon be able to accomplish almost all jobs more cheaply and efficiently than humans, which marks the new AI scaremongering argument as fundamentally different from the previous arguments against labor saving technology. Economists had previously been able to argue that labor saving technology frees up resources and lowers prices in a way which results in net quality of life improvements for society as a whole, creating new jobs and opening up new types of industry, even if it results in short term unemployment for a small minority. But would that really still be the case if the new technology is capable of making human labor obsolete in all types of job?
There are several objections one could make against this argument, not least of which being its dubious assumptions about the capabilities of AI technology. However, the sign of a truly weak argument is not only a reliance on unrealistic assumptions, but a failure to stand up to scrutiny even when its assumptions are taken as given.
Even if it were true that robots and AI could perform absolutely all jobs currently being done by humans, and could do so more cheaply and efficiently than humans, the AI scaremongers would still be incorrect to conclude that robots and AI will replace humans in all, or even most, jobs. The source of their incorrect conclusion is a fundamental misunderstanding of what drives business activity in a market economy. Entrepreneurs are not driven by an arbitrary desire to pursue the most technologically advanced, the most efficient, or even the cheapest production process, purely for the sake of it, as seems to be the assumption of the AI scaremongers and many other anti-capitalists. Rather, the fundamental driving force in a market economy is to direct and organize production in the way that best satisfies consumers’ preferences.
For evidence that this true driving force of the economy does not necessarily lead to increasing reliance on technology, even if that technology would be more cheap or efficient in some objective sense, one need look no further than the sectors in which human workers already are being replaced by ‘robots’ of a sort. Readers who have visited a fast food chain such as McDonalds in the past few years may have noticed an increasing number of self-service touch screens, reducing the need for human staff to take orders. But if this technology exists and is already in profitable use at these fast food chains, why hasn’t it been adopted by all other restaurants? If the AI scaremongers believe robots and AI will necessarily replace all human workers when the former can perform the same job more cheaply and efficiently, how do they account for the fact that human waiters haven’t already been replaced by self-service touch screens at the Savoy Grill or The Ritz? The absurdity of the question illuminates the fact that a desire to satisfy consumer preferences, not bare efficiency and cost-cutting, is the key motivator of entrepreneurial decision making in a market economy.
With a little thought, it is easy to imagine many services which consumers might prefer to have provided to them by human staff, even if a machine were technically capable of providing the same service more cheaply: nurses and care providers, entertainers, chefs, and teachers would likely fall into this category, as would many other jobs.
Given the persistent popularity of UBI across the political spectrum, its advocates are unlikely to abandon any of their increasingly-familiar arguments any time soon. However, it seems unlikely that their new argument about AI-induced mass unemployment will turn out to be the silver bullet they were hoping for.
[Reprinted from Free Market Economics: A Basic Reader, compiled by Bettina G. Greaves.]
Legal and political rights, without distinction as to sex, have been recognized gradually by the governments of most civilized nations of the world. By legislation and common law decisions, women have acquired freedom on a par with men to act, own property, and make contracts in their own behalf. (This freedom is being eroded by the present trend toward socialism—to the disadvantage of both men and women. Special government privileges and subsidies, progressive taxation, legislation limiting the right of contract, hours of work, and so on, have already seriously interfered with the rights of property owners and the freedom of contract. But this is another story.) For all practical purposes, laws now deal with men and women pretty much the same.
Economic Opportunities In recent decades, economic and professional opportunities have been opened to women. Step-by-step, insofar as social customs have permitted, and within the limitations imposed by the “différence” between the sexes which at least the French appreciate, women in this country are relatively free. They may now compete with men, each to the extent of her abilities, in seeking their chosen goals — economically and professionally.
The tremendous advances, which have made it possible for women to achieve recognition as persons—legally, politically, economically, and professionally—are undoubtedly due in large part to capitalistic contributions. Savers, inventors, and producers, operating in a relatively free market economy risking their own private property in the hope of profit, supplied the goods and services which have freed women from the daily drudgery and heavy manual labor expected of them for centuries simply to fulfill their roles as sexual companions, mothers to their children, and homemakers for their families. The improved production and preparation of food, more efficient transport, better retail outlets, and inventions of modern household appliances have given women more time to pursue interests outside the home.
In this day of push button kitchens, automatic timers, electric refrigeration, home freezers, mechanical beaters and choppers, prepared foods and instant mixes, a housewife cannot begin to conceive of the many strenuous chores her grandmothers and great-grandmothers coped with daily. Imagine a home without heat or electricity. Imagine a kitchen without a stove, refrigerator, or running water. Suppose there were no corner stores or supermarkets with milk, butter, bread, meat, vegetables, or soap. Think of a life when each family had to grow its own food, gather the fuel to cook it, tote all water, produce the textiles, and sew, patch, and mend the family clothing.
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Imagine thinking the government can reduce poverty.
For most readers of this website, the thought is laughable. And for good reason. The government has no resources of its own. Every dollar it spends it must first either tax, borrow, or print. Taxing and borrowing redirect money from the voluntary, productive sector of the economy to the hands of politicians. Printing new money erodes the value of currency already held by citizens, harming low-income households disproportionately, while distorting important market signals like interest rates that are vital to coordinating the economy’s complex patterns of production and exchange.
Nevertheless, the Urban Institute—a highly influential and deep-pocketed left-leaning think tank—just released a report claiming that the recently passed American Rescue Plan will reduce the poverty rate by one-third in 2021.
Major media outlets like the Washington Post and CNN wasted little time in reporting on the study’s findings.
The report’s methodologies and assumptions, however, are highly questionable and cast doubt on the legitimacy of its conclusions.
The Urban Institute’s study claims that the Rescue Plan will reduce the number of people in poverty in 2021 “by about 16 million, from over 44 million to 28 million.” This will be accomplished, according to the study, because the plan will increase “aggregate net resources” for households currently under the poverty line by $87 billion, or an average of about $3,850 per family.
The report, however, gives away the game early on. “Our analysis does not include the macroeconomic effects of the policy changes.” This is often referred to as a “static” analysis.
This admission alone should be enough to dismiss the Urban Institute’s findings. Assuming that the massive changes to the money supply, government debt, and incentives to work, spend, or save will have no effect on behavior or other “macroeconomic effects” like price inflation is wholly unrealistic.
For starters, how many households will fall back below the poverty level when price inflation pushes up the cost of living, especially the cost of common household needs like groceries, gas, and utilities?
In January, grocery prices were already up 3.7 percent year over year, the largest such increase in a decade, with beef leading the way with an 8 percent rise.
Gas prices are up more than fifty cents per gallon already this year, and are expected to surge beyond three dollars a gallon this summer. Oil prices are up more than 20 percent this year, and continue to climb.
Add in a “rescue plan” of $1.9 trillion, most (if not all) of which will be newly created fiat currency, and price increases should be expected to accelerate still further. The rescue plan will cost nearly $5,800 for every man, woman, and child in the country (more than $23,000 per family of four). Yet according to the Urban Institute’s calculations, even those households targeted for the greatest amount of relief will receive on average $3,850 per family.
Basic math indicates that low-income households will struggle to keep pace with the rising cost of living, even with the financial relief.
More specifically, the Urban Institute attempts to evaluate the impact of four specific measures contained in the rescue plan.
Unemployment Benefits The plan will add another twenty-five weeks of federal benefits, along with an additional $300 a week. This would continue to be in addition to the normal state unemployment insurance benefits, which average about $300 per week.
At an annualized rate, a household with two people collecting an average of $600 per week in UI benefits would be receiving the equivalent of more than $62,000 per year, nearly matching the national median household income of $68,703.
This obviously provides strong incentives for people not to work, and to hold out for ideal, well-paying job opportunities that may never materialize. Fewer people actively working means lower amounts of production, which limits the quantity of available goods and services. A limited supply of goods and services being chased by a dramatically increasing amount of dollars will help to drive up prices more significantly.
Discouraging work and productive activity is the opposite of helping to alleviate poverty.
And what about the longer-term effects on the recipients once the benefits expire? How much more difficult will it be for them once again to find work after another six months of being out of the workforce? The Urban Institute leaves such questions unaddressed.
SNAP Benefits The Urban Institute report also estimates that the extension of increased Supplemental Nutrition Assistance Program (SNAP) benefits would serve to reduce poverty by one-tenth of a percentage point.
The assumption here again is that the value of the benefits isn’t being traded off against higher food prices, an assumption that is naïve at best and intellectually negligent at worst. The higher cost of living may force more people below the poverty line than the benefits would enable to exceed it.
“Stimulus” Checks Of the four measures analyzed in the Urban Institute’s report, the “stimulus” checks of $1,400 for most Americans are predicted to “produce the largest projected poverty reduction.”
The checks are purported to provide “relief” to families enduring financial struggles thanks to the covid lockdowns. But in spite of the significant spikes in unemployment, especially concentrated in the fields of hospitality and leisure, the majority of people receiving the stimulus checks will have suffered little to no interruption in their incomes.
Once again, however, the Urban Institute simply adds in the stimulus check amounts to low-income households’ incomes and declares that the additional income will propel many households above the poverty threshold with the assumption that the stimulus checks will have no other “macroeconomic effects” like price inflation.
Child Tax Credit Finally, the study claims that the Rescue Plan’s child tax credit increase from $2,000 to $3,600 or $3,000 (depending on the age of the child) will “substantially boost the income of families with children.”
I recall Nancy Pelosi describing $1,000 tax cuts for working Americans as “crumbs” in 2018. But now a similar amount is described by the Urban Institute as a substantial boost in income.
Nevertheless, even though on the margins this additional income from the credit could push some families above the measured poverty rate, it remains irresponsible for the Urban Institute to merely wish away the negative impact of rising prices on low-income households in their analysis.
Only Productivity Reduces Poverty Claims that government can “boost” the economy, or “create” jobs, or reduce poverty should be met with harsh skepticism.
With no resources of their own, the government can at best rearrange jobs, incomes, or patterns of production. But even more likely, the process of doing so will hamper economic progress, destroy jobs on net, and exacerbate poverty.
As John Chamberlain, the late economic historian, stated, “Poverty in society is overcome by productivity, and in no other way. There is no political alchemy which can transmute diminished production into increased consumption.”
Government “stimulus” or “relief” plans are long on encouraging more spending of newly created dollars, but short on encouraging actual production. The combination makes for a perfect recipe for price inflation, but not poverty reduction.
The fact that a report like the one produced by the highly esteemed Urban Institute must resort to such damning assumptions to conclude that the Relief Plan will reduce poverty bolsters my point.
American journalists seem mired in fantasy worlds, at least where it comes to economic analysis, and perhaps we see no greater show of ignorance than in the discussion of the presence of businesses in the poorest areas of inner cities. Time and again, pundits make the specious claim that people in cities are poor because of the presence of small businesses, such as groceries owned by Korean immigrants .
Today, the targets are the Dollar General and Dollar Tree store, which offer inexpensive goods, along with a wide assortment of canned and dried foods, along with milk, meat, eggs, and frozen foods. Declares Tanvi Misra in Citylab :
It has become an increasingly common story: A dollar store opens up in an economically depressed area with scarce healthy and affordable food options, sometimes with the help of local tax incentives. It advertises hard-to-beat low prices but it offers little in terms of fresh produce and nutritious items—further trapping residents in a cycle of poverty and ill-health.
Misra quotes the Institute for Local Self Reliance: “While dollar stores sometimes fill a need in cash-strapped communities, growing evidence suggests these stores are not merely a byproduct of economic distress; they’re a cause of it.”
This is an interesting and extraordinary claim: the presence of retail stores that make goods available to people who otherwise would have few or no shopping choices at all is the cause of the poverty that grips the regions where these people live. Furthermore, as more of these stores are built and located in the inner cities, the people living there become poorer as a result of the very presence of these businesses.
Misra then tries to clarify her claims:
Dollar stores have succeeded in part by capitalizing on a series of powerful economic and social forces—white flight, the recent recession, the so-called “retail apocalypse”—all of which have opened up gaping holes in food access. But while dollar stores might not be causing these inequalities per se, they appear to be perpetuating them. The savings they claim to offer shoppers in the communities they move to makes them, in some ways, a little poorer.
How does this phenomenon – that Dollar Stores perpetuate and further conditions of poverty – occur? How does making goods available at affordable prices that would not be possible in the absence of such businesses perpetuate poverty? The pundits reply in two words: food deserts.
According to the U.S. Department of Agriculture, a food desert is a part
of the country vapid of fresh fruit, vegetables, and other healthful whole foods, usually found in impoverished areas. This is largely due to a lack of grocery stores, farmers’ markets, and healthy food providers.
Dollar stores, say the critics, sell mostly processed of canned foods and do not have sections providing fresh foods and vegetables. Therefore, according to the “logic” of the left, because a certain class of foods is not sold at these kinds of stores, therefore they are preventing the sale of such food. Leftist journalists and other critics of private enterprise simply claim that because there are Dollar stores in the inner cities and because these stores don’t sell fresh fruit and vegetables, that therefore private enterprise is the cause for creation of so-called food deserts.
This accusation against businesses, however, does not fly with the facts. In recent decades, Korean immigrants have opened many small groceries in cities like Los Angeles and New York City – and often are met with hostility, violence, and outright murder. During the 1992 Los Angeles riots, inner-city residents often deliberately targeted Korean-owned businesses and police refused to protect them, leaving the merchants to arm and defend themselves.
Likewise, during the 2015 Baltimore riots, rioters looted and burned many Korean-owned enterprises , claiming that Koreans were “exploiting” customers. In New York, it was not uncommon for groups tied to Al Sharpton to organize boycotts and violent demonstrations against Korean store owners. The Koreans were people who risked their own resources to bring fresh fruits and vegetables to neighborhoods where such enterprises had not previously existed, but instead faced violence, boycotts, and outright racist rhetoric against their Asian ethnicity. They did so in an attempt to make a living, not out of benevolence, but their risk-taking nonetheless provided opportunities for inner city residents that they would not have had otherwise.
As for food choices, the claim that fresh food (or maybe semi-fresh, given the distances these foods are hauled, especially in winter) food is more nutritious than frozen or canned foods is overblown. The January 27, 2014, edition of the Journal of Lifestyle Medicine said that “fruits and vegetables packaged as frozen or canned are cost-effective and nutritious options for meeting daily vegetable and fruit recommendations in the context of a healthy diet.” In other words, one can both eat healthy and shop at the Dollar Store, leftist accusations to the contrary.
While much of the rhetoric against Korean and other Asian merchants in the inner cities often is hateful, at least no one has carried out “studies” that accuse these merchants of causing poverty where it had not existed before. As one reads Misra’s article and the quotes from the “experts,” one finds a series of contradictory statements and a lack of understanding of basic economic concepts. For example, she writes:
Today, dollar stores are thriving both in the poorest of small rural towns , where environmental changes or globalization have wiped out economic activity, and larger cities like Baltimore, where decades of disinvestment in largely African American communities have left vast tracts barren of retail options. In a recent blog post tracking their rise in low-income parts of Baltimore , planner and architect Klaus Philipsen observes that dollar stores are now “flourishing in many poorer neighborhoods like a parasite.” (Emphasis mine)
She continues:
The problem is not just the stores themselves. According to the ILSR, they tend to create fewer jobs on average than independent groceries—9 versus 14. The low-wage jobs they do create aren’t of great quality . And it’s not entirely clear if their offerings are that much more affordable either. When economists compared the price of goods like flour and raisins of the same weight, they noticed that dollar store products were higher cost than those at the nearby Walmart or Costco.
Lest one be concerned that Dollar Stores ( according to The Guardian ) are “ripping off consumers with higher prices, Misra also claims the firm is undercutting other businesses with low prices:
Then there’s their negative effect on others stores nearby. When a dollar store opened up in Haven, Kansas—subsidized through tax breaks by the local government—sales at the the nearby Foodliner grocery store dropped by 30 percent, The Guardian reported earlier this year. While the ILSR doesn’t have quantitative data supporting this effect on supermarkets in the vicinity, anecdotally, they surmise that “the difference in margins is just enough that the local stores are not able to stay in business when there are so few options and there is an undercutting of prices,” Donahue said.
The comparison with Wal-Mart is rich. No company has been more accused by the left of malfeasance than Wal-Mart. If Wal-Mart charges low prices and changes the local retail landscape, then the company is said to be predatory. But if Wal-Mart or Dollar Stores charge prices that the pundits deem “too high,” then the stores also are engaged in “predatory” behavior. Furthermore, urban activists time and again have sought to keep stores like Wal-Mart from locating in large cities, but when other retailers move into the void, leftist activist condemn those stores, too.
As for jobs, the purpose of retail stores is to provide goods for customers; no one has touted them as an employment program. However, no matter what leftists might claim , jobs are not the “cause” of poverty. That assumes that people are better off with no income (and no employment) than they are earning money. It is true that retail jobs do not pay very well – something to be expected – but to claim that people are better off having no job, no income, and no available food to purchase than having the presence of a Dollar Store in a city is ludicrous on its face.
So, the American left gives us another set of ridiculous propositions. They demand high-paying jobs but no employers; they demand an abundance of food and other goods, but also demand that no place to sell these items be permitted to be located anywhere.
Dollar Stores are not boutiques, but neither are they the poverty-causing, starvation-producing hellholes that the critics claim them to be. In many urban communities, they are places where poor people can purchase necessities and decent food and snacks. In rural areas and small towns, they mean people don’t have to drive long distances to buy what they need. To put it another way, they serve their customer base well, but it is not a customer base of elite journalists and politicians.
In recent decades, a number of states enacted statewide law preempting local ordinances enacting rent control. Now, some state governments are beginning to move in the opposite direction. State-level policymakers are attempting to repeal these bans in some states with the hope that local governments will then enact rent-control measures of their own.
Two recent examples are California and Colorado. In California, for example, the measure was submitted to the voters in a statewide referendum in 2018. The measure was defeated.
This year, the Colorado state legislature is attempting the same thing. A new bill in the Senate has been proposed which would allow local governments to enact their own rent control measures.
The measure does not mandate that any county or city or local government of any kind enact rent control. It simply decentralizes the legal authority as to which legislative body decides whether or not rent control ought to be implemented.
If the bill passes, then it will be up to county commissioners and city councils to adopt or enact rent control.
Of course, those who support the measure almost certainly support the implementation of rent control in general. If they thought they could get away with it, they might also support a statewide mandate of rent control. The political realities of the present, however, do not allow this.
Regardless of what supporters might hypothetically do, the fact remains that the bill only hands over prerogatives to local governments.
This puts the bill's supporters in a good place politically. In a state like Colorado, which has long tended to sympathize with the idea of "local control" and "home rule," the bill's supporters need only say "we're letting the local voters decide."
Opponents of the bill, meanwhile, find themselves in an awkward position. Their position ends up being a call for state politicians to boss local politicians around.
Anti-rent control advocates can argue until they're blue in the face as to the damaging effects of rent control — which are real. Rent control is overwhelmingly negative for low-income people, and it only benefits the minority of renters who are able to obtain the few rent-controlled units that become available. The majority of renters will face greater hardship. Since rent control will cause housing developers to produce fewer housing units, the long term effects of rentcontrol will be a smaller supply of housing units overall within the rent-controlled jurisdiction. Most renters are likely to end up with longer commutes, or will be living in more crowded conditions in aging units. They'll have fewer housing choices, and lower-quality housing.
But all of this fails to address the issue of local control, and advocates for the bill need only reiterate they're not necessarily pushing rent control. They're simply putting it in the hands of locals.
To a great many people, this approach may strike them as quite reasonable. After all, it's unclear why the state government should have a role in local housing regulations at all. While statewide laws such as the rent-control ban have long been justified as a matter of "statewide interest," the concept is among one of the most arcane and vague in legislation. What constitutes a statewide interest has long been little more than a matter of opinion. Moreover, the claim doesn't appear to apply much in the matter of rent control. Housing markets, home prices, and housing regulations have always been eminently local matters.
Meanwhile, the anti-rent-control advocates — many of whom tend to be Republicans and conservatives — end up arguing against decentralization and local control, even though these same groups profess to support these two ideals in other contexts.
Local Control Is Best But even if one agrees that rent control is disastrous for most low-income renters, that doesn't justify statewide legislation on the matter.
The benefits of decentralization have always been apparent. It creates more choices for voters and taxpayers in finding jurisdictions that reflect their values. Smaller jurisdictions make it easier to escape onerous laws and regulations. Decentralized laws allow for diverse populations to more easily live in peace rather than be constantly at war to control a single centralized lawmaking body. Moreover, lawmaking at the local level is more responsive to local citizens, and lawmakers are more accessible.
Many Americans tend to see these arguments strictly in terms of state-federal realtions. But the same arguments for favoring states in the state-federal balance apply equally in the state-local balance as well. After all, there's nothing magical about state-level government, and there's no non-arbitrary reason being given as to why voters and policymakers at the local level ought not be allowed to decide for themselves. Are we really to believe that state-level politicians are more educated, more reasonable, or more insightful than local politicians? In many cases, the these two groups include the same people, as many politicians move up and down between local government and state government positions.
Moreover, some US states are larger than many nation-states, thus making a mockery of the idea that there's anything local about statewide government. States like California, Texas, Florida, and New York are all as large as medium-sized European countries.
Some will still claim "but it's all just a Democrat scheme to spread rent control!" Yes, I get it. But I also get that if people regard local policy as a matter for far-off state politicians, then it's much easier to impose statewide rent control, as has happened in Oregon.
[RELATED: "Oregon Defies Logic with Statewide Rent Control" by Andrew Moran]
Moreover, experience shows decentralization works in a whole variety of directions. For example, as federal courts have tolerated more local autonomy on the abortion issue, we've seen state governments use this de facto decentralization to legislate against abortion. Local governments have been more successful than federal reformers at scaling back police abuse of asset forfeiture laws. State governments have increased the freedoms of gun owners in many states. Thus, we see that decentralization in a federal context has been used to increase property rights in a number of cases. There's no reason to assume further decentralization to locals necessarily works in the opposite direction.
The problem we now see in the rent-control drive isn't that advocates want de-centralization, per se. The problem is that their proposal is limited to a single issue. If local governments ought to have control in matters of rent control, they should gave control in a variety of other matters too.
For instance, there should be no statewide minimum wage. If communities want something above the federal minimum wage, leave it up to cities and counties. Indeed, there should be no statewide business licensing or labor regulations at all. Statewide blue laws should all be out the window as well, with no state regulations on who can sell alcohol — or recreational drugs — when or where. Gun laws, too, ought to be for county sheriffs to decide.
In typical fashion, many conservatives will scoff at this, and say "that seems unlikely to happen!" But for this, we mostly have so-called advocates for "local control" to blame. Rarely do these supposed local-control advocates ever actually push for any meaningful decentralization down to the local level. Most have always been content to lazily accept the status quo in which state-level politics dictates to local governments on an endless number of issues. Even when these groups are in power, they rarely push for locally-focused reforms.
Now that some rent-control advocates are using the strategy to benefit themselves, we're now all supposed to buy the idea that state-level policy is necessarily better than local policy. It's an unconvincing claim.
Egalitarian ethics are pervasive in our society, despite a multitude of logical problems. So popular is the idea that an inequality of wealth is a problem, that politicians such as Bernie Sanders have — ironically and hypocritically — become millionaires by appealing to these ideas. The phrases “income gap” and “wealth distribution” have gained wide currency in political parlance.
The notion that differences in wealth are inherently problematic is laughably easy to refute. If one person earns $20,000 a year, and another person earns $50,000 a year, they have an “income gap” of $30,000. Should both of their incomes double, their new income gap would be $60,000. Instead of celebrating the fact that both people are economically better off, the media will run headlines about the “growing income gap.”
Even John Rawls, the egalitarian par excellence added his famous proviso (which is to say, in this case, a philosophical inconsistency) that allowed non-egalitarian outcomes in cases where the poor are made better off, but his ethics still suggest that making the rich less wealthy would be a moral good even if nobody is made better off in the process. Most egalitarians (including Rawls, in another proviso) are inherently nationalistic as well, concerning themselves only with the “poor” in the United States — despite their being among the richest people globally. Even Bernie Sanders rejected policies that might lift the world’s poor out of poverty at the expense of the far-less-poor in the United States.
Even for those egalitarians who do care about the global poor, many objections to market reforms — if you can believe the absurdity of the argument — is that they would help the “most able” poor more than the “less able” poor. This is the objection to the efforts by Peruvian economist Hernando de Soto to help the poor gain legal titles to the land they have occupied for generations. Similar criticisms have been levied against Muhammad Yunus’s strategy of providing microloans to the working poor in Third World countries. Yunus started by providing small loans out of his own pocket to Bangladeshi women who made bamboo furniture for a living. His critics have complained that only the “more talented” women have the ability to run their own business and become financially independent.Joyce Appleby, The Relentless Revolution: A History of Capitalism (New York: W. W. Norton & Company, 2010), p. 431.
In the toxic philosophy of egalitarianism, it is literally considered better for all of the poor to remain destitute than for only some of the poor to become better off. The dangers of such a philosophy were demonstrated with Vladimir’s Lenin’s introduction of the kulaki — a term to describe the “bourgeois” peasants who were mildly better off than the rest of Russia’s poor. This division between the extremely poor and slightly less poor was the basis for the Soviet war against the peasantry, in which millions of rural Russians were murdered or shipped off to forced-labor camps.
The bifurcation between the rich and the poor is often described as a difference between the “haves” and “have nots.” The alleged evil of wealth inequality is characterized by those things the wealthy own that most people cannot afford at all. But economic progress through history shows a pattern that should make people look at wealth inequality differently. Instead of looking at what some people don’t have, we should look at what everybody does have—or at least is capable of obtaining.
Progress: Making "Luxuries" Widely Affordable The history of economic progress follows a common pattern. New items are put to market, but their rarity and novelty precludes most people from being able to afford them. Over time (and often only a short period of time) the “luxury” becomes commonplace. Most interesting are those items that, while being widely accessible to the poor, are still consumed by the wealthy.
At the birth of English industrialization, one of the first examples of such a luxury item was purple dye. Ostentatious clothing was a way that the aristocracy could set themselves apart from the bulk of society. The color purple was associated with royalty, but this connection was the result of how expensive purple dyes were to come by. “Tyrian purple” dye was harvested from a rare species of snails, and because it took a quarter or a million snails to produce only an ounce of the dye, only the exceedingly wealthy could afford it. Purple stood as a status symbol for millennia.
As England industrialized, steam power made cotton textiles more affordable (and comfortable) than previous materials, such as wool. This raised demand for dyes, which led to further innovations from entrepreneurs seeking to profit from the textile boom. The cochineal, an insect found on Mexican cacti, was used to produce a red dye. Meanwhile, a woman in South Carolina, Eliza Pinckney, developed a way to grow indigo in the colony, which produced a blue dye. Manufactures mixed the dyes together, and the British aristocracy suddenly found themselves surrounding by working class people wearing the “color of kings.”
Clothing dye may seem like an odd example of something that lifts the poor closer to the status of the wealthy, but in the aristocratic culture of seventeenth-century England, the change was tremendous. The poor not only had cheaper access to more comfortable clothing, but they could buy it in such a variety of colors that clothing largely ceased to be a demarcation of status.
The reason this insight is easy for people to overlook is because it usually involves items that seem rather banal. But the banality is precisely the point. What once was a luxury became an everyday item, consumed by the rich and poor alike. Most people give little thought to a photo of Warren Buffet drinking a Coca-Cola, but the idea that one of the richest men in the world would drink the same beverage consumed by the average person (and even the global poor) is an entirely modern phenomenon.
The same can be said for items that have a more undeniable impact on the improvement of conditions. We all know that Henry Ford is not famous for inventing the automobile. He gained his wealth by finding a way to make cars affordable for working class people. Even today, while there are still “luxury cars” that only the rich own, the qualities that make them “luxury” have become increasingly narrow. It is not only the rich who have once-luxury features such as air conditioning, stereos, power windows, and seat warmers.
Cell phones, of course, are another go-to example of commonplace luxuries. It was not that many years ago when cell phones — which were bulky and only had a single function — were little more than pricey status symbols for corporate executives and the political elite. Today, it is not enough to say that the average person has a cell phone that is wildly superior to the earlier models; we should also recognize how significant it is that they have the same cell phone as the wealthiest people in the country.
It is easy to find any number of items that follow the pattern of purple dyes, soft drinks, cars, and cell phones. If we measure wealth disparities in dollar terms, it does seem like inequality increases under capitalism. Although advocates of free trade are correct to identify the logical problems of egalitarian ethics, we often miss the opportunity to point out that when we consider the increasing material similarities between the rich and poor that accompany economic progress, it is really quite absurd to say that capitalism increases the inequality of wealth at all.
Immigration is a highly contentious topic in modern societies, with almost all of the different regimes across the OECD showing failures on some measure. As populist responses increase to rising levels of immigration, a policy solution must exist that assuages the concerns of those who have gripes with the current system in order to maintain political stability. Amongst the myriad of potential immigration policies, the one that stands out with the most suitable incentives is that of private sponsorship.
Private sponsorship asks that either an individual or an organisation from the host country vouches for the potential immigrant before they arrive. They bear the risks associated with immigration. For example, if the individual commits a crime, the sponsor would have to pay the costs of judicial process and deportation. The added benefit of allowing private organisations or individuals to sponsor immigrants is that the government no longer needs to pry into personal affairs, asking why someone is coming or why someone is a sponsor. It would simply be assumed that by bearing risk, the sponsoring party is making a rational decision. This incentive results from the skin in the game principle, that those who bear the risk of an action are more likely to make better decisions.
Private sponsorship regimes prove superior to current systems by removing the bureaucratic issues currently associated with immigration. Among these problems is the arbitrariness of certain features, such as quotas or occupational restrictions, which change over political cycles at great costs to current and potential immigrants. Another problem is the application of Goodhart’s Law, the principle that when a measure becomes a target, it ceases to be a good measure. Points-based, and other skills or aptitude-based immigration systems all succumb to the fact that by using a quantitative measure that correlates to success as an immigrant, the relationship breaks down once the rules of the system are known. These together lead to inefficiencies that prevent adequate coping with high volume of movement, and post-migration inefficiencies that pose threats to the mental health and social integration of migrants.
The largest problem, however, is the issue of modern welfare systems and the incentives they send. If new immigrants are eligible for full welfare benefits, this sends a perverse incentive for migrants, as they now have economic benefits not tied with the opportunities or culture of the area. By providing new immigrants with welfare, at the expense of the tax-paying population, political tensions are bound to arise. To resolve this, many states have decided to limit the ability for immigrants to collect welfare, which creates other distortionary pressures as their wages will lack the same purchasing power as those who are able to collect state benefits, disincentivising movement.
The Canadian immigration system features elements of private sponsorship for refugees. Between 2002 and 2012, 50% of privately sponsored refugees reported earnings within 1 year of moving, compared to only 14% of government sponsored ones, which serves to increase their English skills and feelings of social integration. In Europe, where concerns over refugee integration are high, this would provide a practicable solution. Churches and other religious bodies have members of their faithful with concern over the plight of refugees and migrants, and would be willing to bear the costs of caring and their assimilation, which would put the onus on specific groups with properly aligned incentives, and away from the state, which puts the issue in a political context.
A private sponsorship regime is quite flexible in terms of the specifics of sponsorship. One can tweak the specifics of the contract to expand upon the obligations of the sponsor. In cases of divorce, one can ask the citizen-spouse to pay for the costs of the foreign-spouse’s lawyer and divorce proceedings, and any associated welfare costs required during that time. This would alleviate any perceived social burdens that arise from immigration. It should, however, be left to the most local level actor to stipulate more specific concerns beyond crime, as to avoid generalising to areas where those concerns do not apply.
In an ideal world, there would be the opportunity for free movement of people to wherever is in their best interest. Sadly, due to the perverse incentives created by current welfare systems, an open border system would not send out accurate price signals of economic opportunity, distorting the reasons for migration. Private sponsorship regimes sidestep this issue by attaching liability to specific people rather than the state as a whole. This means that new immigrants will not be economically disincentivized by the gap in their access to welfare, as private sponsors are ensuring opportunity, but they will also not have the ability to be a tax burden on anyone other than the willing private sponsor. Localising to individuals, such a private sponsorship system would cut out a lot of the waste associated with current immigration regimes, until a time when welfare reform would allow for freer movement with better incentives.
Originally published by the Institute for Research in Economic and Fiscal Issues.
Alexandria Ocasio-Cortez never misses the opportunity to bash capitalism.
At the 2019 South by Southwest festival, the Congresswoman derided capitalism, describing it as “irredeemable.” She says that the U.S. is currently facing the consequences of “putting profits over everything else in our society.” Curiously, the freshmen congresswoman pivoted her rant towards a critique of the New Deal.
How could such a staunch leftist like Ocasio-Cortez — who fashioned her pet legislation as the “Green New Deal” — criticize its 20th-century predecessor? She was able to do so by turning this discussion into a matter of race.
In her view, Roosevelt’s New Deal cut African Americans a raw deal:
“The New Deal was an extremely economically racist policy that drew little red lines around black and brown communities and it invested in white America.”
Ocasio-Cortez continued expanding on the New Deal’s harmful effects: “It allowed white Americans access to home loans that black Americans didn’t have access to, giving them access to the greatest source of intergenerational wealth.”
Misinterpreting the New Deal’s Racist History The congresswoman is correct about the New Deal’s racist policies, albeit from an observational standpoint. I wrote about this previously, detailing how the federal government promoted segregated housing during the New Deal at the African-American community’s expense.
However, Ocasio-Cortez’s talk about the New Deal flagrantly omits other government interventions that clearly affected racial minorities in a negative way. The Wagner Act of 1935 — which established labor-union monopolies — gave incumbent unions tremendous power to exclude low-wage workers. During this period, union heavyweights discriminated against black workers in order to keep wages artificially high for white workers.
Similarly, the National Industrial Recovery Act of 1933 allowed the executive branch to create industrial cartels to restrict output and enact minimum-wage policies. This resulted in approximately 500,000 blacks being pushed out of the labor market thanks to high, non-market wages.
Despite these overlooked aspects of the New Deal, Ocasio-Cortez continues to race hustle and thinks that more government intervention will somehow “correct” past injustices that the government itself created.
How Limited Government Made African Americans Prosperous In contrast to the New Deal, markets have historically helped racial minorities. It was during the Gilded Age that the African-American community was able to first establish itself as an economic force. This was an era when there was no welfare state, no federal tax maze, nor an alphabet soup of bureaucracy to impede capital accumulation and business creation.
During this time, African American civil society was at its peak. David Beito’s From Mutual Aid to Welfare State was a seminal work in demonstrating how the African-American community thrived without any form of government assistance before the New Deal. Civic organizations like the Independent Order of Saint Luke and the United Order of True Reformers “specialized initially in sickness and burial insurance,” and became leading institutions in African-American civil society.
The Independent Order of Saint Luke stood out for its entrepreneurial endeavors and ended up establishing the Saint Luke Penny Savings Bank of Richmond, which had the honor of having Maggie L. Walker as the first, black female bank president in American history.
Additionally, prosperous enclaves such as “Black Wall Street ” in Tulsa, Oklahoma’s Greenwood District and Detroit’s Black Bottom neighborhood demonstrated the power of black capitalism. No central planning was needed to establish these business neighborhoods.
Alexandria Ocasio-Cortez and her intellectual cohorts make sure that this history falls down the memory hole. Bashing capitalism is simply too easy and anything that disrupts the narrative, must be cast aside.
Is Capitalism Truly Irredeemable? So, is capitalism irredeemable and worthy of eternal scorn? Human Progress depicts what capitalism has been able to achieve, even with the fiscal and regulatory shackles imposed on it:
“....in 1820, 94 percent of the world’s population lived in extreme poverty (less than $1.90 per day adjusted for purchasing power). In 1990 this figure was 34.8 percent, and in 2015, just 9.6 percent.”
Human Progress’s findings are in line with Mises’s view in Human Action that economies with nominal degrees of capitalism are still capable of delivering constant improvements in living standards: “The characteristic mark of economic history under capitalism is unceasing economic progress, a steady increase in the quantity of capital goods available, and a continuous trend toward an improvement in the general standard of living.”
Most importantly, capitalism has made us more humane in our treatment of domestic animals and has granted women and children unprecedented access to leisure activities and educational opportunities to improve economically. Sadly, select parts of the world — especially present-day Venezuela — have regressed into barbarism due to their political class’s complete rejection of capitalism and private property rights.
Indeed, Western mixed economies still have work to do, but the direction they must head towards is one of more liberalization, not government control.
The Invisible Iron Fist of Government Bureaucracy Politicians like Ocasio-Cortez see poverty and working-class people struggling to make ends meet, but they don’t see the mountains of paperwork and regulations in the background that make the cost of living so high and make it difficult to run a small business. They also ignore the minimum wage laws that keep countless unskilled minority workers – their primary constituents – from entering the workforce and getting the experience they need to improve their lives.
Refuting the historical distortions and false narratives surrounding capitalism is incumbent upon on all free-marketers. George Orwell said it best, “Who controls the past controls the future. Who controls the present controls the past.”
Politicians like Alexandria Ocasio-Cortez come and go, but their ideas have staying power. When these ideas are allowed to go unchallenged, they can transform into veritable nightmares in the political arena. The very least we could do is challenge these flawed ideas. If we fail to do so, we are only sowing the seeds for our inevitable defeat.
Secretary of Commerce Wilbur Ross is recommending “a 24 percent tariff on all steel imports from all countries,” the NY Times reports. Ana Swanson writes that the tariffs, “are aimed at saving American steel and aluminum producers, who have struggled to compete with a flood of cheap metals from abroad, particularly from China.”
Ironically, Diana Olick reports for CNBC, in a piece about multi-family housing, “The cost of that two-by-four, lumber, is now at a record high. Other products like steel and concrete are more expensive, but the real cost spikes are in land and labor. Skilled construction labor is not only expensive, it is extremely difficult to find.”
The boom in construction of upscale apartments is not a new story, but perhaps a few developers are finally smelling danger. Toby Bozzuto, president and CEO of The Bozzuto Group, a multifamily management and development company operating in the Northeast and Mid-Atlantic told Olick, "That being said, it is a tale of two cities. In the middle income and the lower income markets, people are spending proportionally more on their rent — so much so I believe there's an acute crisis headed our way."
Olick reports,
Apartment completions in the 150 largest U.S. cities jumped to 395,775 units in 2017, beating 2016 production by a staggering 46 percent and more than doubling the long-term average, according to RealPage, an apartment management software and data company. Luxury, upscale buildings accounted for between 75 and 80 percent of the new supply in the current cycle.
Of course Fannie Mae has stepped in to provide the financial support. On it’s website, the GSE crows, “Fannie Mae (FNMA/OTC) provided more than $67 billion in financing and supported over 750,000 units of multifamily housing in 2017 – the highest volume in the history of its Delegated Underwriting and Servicing (DUS®) program.” Fannie provided $65.4 billion in financing in 2016.
In Las Vegas NAIExel indicates that last year 7,000 units were either completed or under construction, a large increase in units, most of which are luxury units.
"It's really tough to deliver product at those lower price points. The cost of land, the cost of building materials, the cost of labor. It's really about the same regardless of what product you're doing and it's just tough to make a deal work financially if you're going toward that middle-market price," said Greg Willett, chief economist at RealPage.
However, renters don’t have the financial capacity to keep paying higher and higher rents. Olick explains, “nearly half (47 percent) of all renter households (21 million) pay more than 30 percent of their income for housing, including 11 million households paying more than 50 percent of their income for housing, according to a late 2017 report from Harvard's Joint Center for Housing Studies.”
The President isn’t worried about housing. “You may have a higher price, but you have jobs,” Mr. Trump told a bipartisan group.
"The two-by-four doesn't care whether it's in a luxury building or in an affordable building. It costs the same," said Bozzuto. "The differential of course, is the rent and there's a huge disparity in high-end rent versus low-end rent. So the issue is for us to develop an economically viable, feasible project, it has to be, by its very nature, high end. The rents have to be high to support the cost."
Murray Rothbard describes the problem with tariffs in “Power & Market,”
Tariffs and various forms of import quotas prohibit, partially or totally, geographical competition for various products. Domestic firms are granted a quasi monopoly and, generally, a monopoly price. Tariffs injure the consumers within the “protected” area, who are prevented from purchasing from more efficient competitors at a lower price. They also injure the more efficient foreign firms and the consumers of all areas, who are deprived of the advantages of geographic specialization. In a free market, the best resources will tend to be allocated to their most value-productive locations. Blocking interregional trade will force factors to obtain lower remuneration at less efficient and less value-productive tasks.
Trump’s tariffs combined with Fannie’s full throttle funding will have the multifamily hitting the wall.
In " The Intellectuals and Socialism ," F.A. Hayek contrasted intellectuals with scholars, original thinkers, and specialists. The intellectual is a public figure who is a "secondhand dealer in ideas" who is not necessarily very bright but can speak and write with confidence and authority about a wide range of subjects with which he or she has little direct knowledge or experience. What can make the intellectual class so dangerous is its insularity combined with its unprecedented power (via Big Media) in modern democracies to influence public opinion over the long run.
One has to wonder what Hayek would have made of Charles Krauthammer. The ex-psychiatrist and conservative commentator recently died on June 21 after a ten-month battle with cancer. To say that the eulogies of Krauthammer (that are still coming in) have been fawning is an understatement. "Unparalleled genius," "intellectual giant," and "scintillating brilliance" have been just a few of the superlatives offered on Fox News Channel and other media.
Four ideas that Krauthammer embraced provide insight into why he was so adored by the U.S. ruling class and media establishments.
- Civilized societies do not allow their citizens to own firearms.
"It is simply crazy," Krauthammer wrote , "for a country as modern, industrial, advanced and now crowded as the United States to carry on its frontier infatuation with guns…Ultimately, a civilized society must disarm its citizenry if it is to have a modicum of domestic tranquility of the kind enjoyed in sister democracies like Canada and Britain."
Krauthammer supported the federal "assault-weapons" ban because, even though he knew that there was no such actual class of weapons, he saw the ban as a first step toward banning all firearms: "Its only real justification is not to reduce crime but to desensitize the public to the regulation of weapons in preparation for their ultimate confiscation. Its purpose is to spark debate, highlight the issue, make the case that the arms race between criminals and citizens is as dangerous as it is pointless."
Notice the complete denial of the legitimacy of the U.S. Founders' motive for writing and ratifying the Second Amendment: small arms as a counterbalance to state tyranny. Mass ownership of firearms, a relic of "frontier history and individualist ideology," is really about engaging in a "pointless and dangerous arms race between criminals and citizens."
The intellectual in the Hayekian sense works for the ruling class; makes a comfortable income from various media outlets; lives in a low-crime, gated, or security-guard monitored community in a national capital; and rarely if ever hunts or shoots for sport. Hence it's no surprise that he or she sees gun ownership as a Wild-West anachronism.
- Democratic Realism
Krauthammer favored the Reagan Doctrine (1985) of militarily and financially supporting the Third-World enemies of communism and Democratic Realism (2004). In applied foreign policy he supported the Gulf War (1991), the invasion of Iraq (2003), and the torture of captured Islamic militants for information gathering.
Democratic Realism is not foreign-policy realism in the usual sense, which has "no vision…no ends" ( 18 ). By all means, invade and topple regimes and centrally plan Western-style democracies, but only "where it counts" ( 19 ). Yes, this was hardly an objective standard and had an uncanny way of coinciding with where ruling-class interests, Tel Aviv, and Riyadh wanted to see societies bulldozed and rebuilt…with U.S. blood and taxpayers dollars, of course.
To his credit, Krauthammer understood the herculean (if not impossible) task of centrally planning nations such as Iraq into Western-style democracies: "Reformation and reconstruction of an alien culture are a daunting task. Risky and, yes, arrogant" ( 1 ). Yet he still enthusiastically favored it: "There is not a single, remotely plausible, alternative strategy for attacking the monster behind 9/11. It's not Osama bin Laden; it is the cauldron of political oppression, religious intolerance, and social ruin in the Arab-Islamic world—oppression transmuted and deflected by regimes with no legitimacy into virulent, murderous anti-Americanism" ( 16-17 ).
Hayek identifies one fallacy behind this way of thinking: "In particular, there can be little doubt that the manner in which during the last hundred years man has learned to organize the forces of nature has contributed a great deal toward the creation of the belief that a similar control of the forces of society would bring comparable improvements in human conditions."
The other problem is, again, insularity. The intellectual class's advocacy of war is easy because it so often has little if any "skin in the game." Despite ample opportunity before his spinal-cord injury paralyzed him from the waist down, Krauthammer never enrolled in any branch of the armed services. Although Krauthammer left a long record of wildly wrong predictions, his most ironic was that he would have serious credibility problems if weapons of mass destruction (WMD) were never found in Iraq. Even he had to be astonished to see his career not only flourish like never before, but the ruling and media establishments double down in promoting him as an infallible foreign-policy guru.
- The cartelization of medicine.
Before taking an extended leave of absence in 2017 to fight his cancer, Krauthammer was troubled by the debate over repealing Obamacare, specifically the arguments made by some Obamacare opponents that health care should be treated like any other service and the market for health care be allowed to operate freely. To this Krauthammer objected vehemently, arguing on Fox News that health care was different from other services and those differences required heavy state regulation.
This belief is common among medical professionals but ironically the most thorough elucidation of the unique properties of heath care was by economist Kenneth Arrow in his 1963 American Economic Review (AER) article, "Uncertainty and the Welfare Economics of Medical Care."
Arrow, a fervent interventionist like Krauthammer, saw health care's unique properties in four areas: demand, supply, intrinsic nature, and pricing practices. Demand is unsteady and unpredictable because it is based on illness. Supply is restricted by occupational licensing and very costly education. The product cannot be sampled before purchase, competition in price and quality are just about non-existent, and uncertainty about product quality is very high. Price fixing is pervasive and it has never been subject to anti-trust enforcement.
None of these characteristics individually is unique to health care and taken together they do not make the case for heavy state regulation. Auto, home, appliance, and computer repair are all subject to individually unpredictable demand. Many goods and services cannot be sampled before purchase and have a product quality that is uncertain. Return policies and warranties have addressed at least some of these issues. Occupational licensing and the artificially high cost of medical education were created by the industry to serve as barriers to entry.
For the intellectual class, these details do not matter. Hayek: "It is perhaps the most characteristic feature of the intellectual that he judges new ideas not by their specific merits but by the readiness with which they fit into his…picture of the world which he regards as modern or advanced. [The current dominant world view] will make the intellectual readily accept one conclusion and reject another without a real understanding of the issues."
Intellectuals in the U.S. and Europe can be wrong again and again with disastrous consequences and still maintain their good standing in the media and ruling classes. On the other hand, persuasively advocating the abolition of the Food and Drug Administration (FDA), Medicare, Medicaid, or even the obviously dubious Veterans Administration (VA) is a quick route to irrelevance and losing access to mainstream media outlets.
- The welfare state, not limited government and technology, brought the U.S. into the modern world.
If there is a distinctive feature of progressive ideology, it is the ardent belief that the state is the ultimate source of civilization and high living standards. Said Krauthammer on the 24th of July 2017 :
In the mid-Twentieth Century, [the Democrats] did great things for the country. They invented Social Security, they decided the elderly should not be destitute. They're the ones who gave us Medicare, Medicaid...For three generations they worked on the idea of a safety net, a social network around people supported by the government. They brought us into the modern world because before FDR we really had a government that wasn't that different from the government of the Founders.
No one would be surprised to hear these thoughts from far-left progressive Elizabeth "The State Created Everything" Warren, and yet they were actually expressed by the most adored conservative Republican intellectual of at least the last decade.
The history is muddled (Medicare [1965] and Medicaid [1965] were not part of FDR's New Deal [1933-1936]) to complete fantasy (the federal retirement age was originally set at 65 [life expectancy] to ensure that Social Security benefits would be difficult to collect—not exactly a program designed to insulate the elderly from destitution). Yet even on a supposedly market-friendly conservative television network such as Fox there is no challenge to this viewpoint or any attempt to educate the audience on how federal economic policy (including the creation of the Federal Reserve) led to the Great Depression which in turn paved the way for the New Deal.
As Hayek explains, the intellectual "by his whole disposition, is uninterested in technical details or practical difficulties. What appeal to him are the broad visions, the spacious comprehension of the social order as a whole which a planned system promises." To intellectuals such as Krauthammer and Warren, it is preposterous that the high standard of living in the U.S. came about apart from rigorous bureaucratic state planning.
Conclusion
In Irving Charles Krauthammer we see the quintessential intellectual in the Hayekian sense. It is one of the greatest ironies in a life of them that his career ended shortly after writing a book titled, Things That Matter. What his ideas illustrate is that what matters little for the intellectual class are the facts, true cause and effect in history, an adequate understanding of economics, and the millions of people their favorite policies put in peril in terms of life and limb. These things matter even less to the intellectual class's swooning followers in the media and ruling classes. After all, the job of the intellectuals is to eloquently and skillfully promote ruling-class interests, and that, like Krauthammer, they have certainly done well, if little else.
From crime rates to life expectancy to income levels, statistics at the national level are next to useless when it comes to measuring the daily lives of ordinary people in the United States. This is because the United States — which is a huge and geographically diverse country — is simply too large to be summed up in a single number. This sort of generalizing is inappropriate for pretty much any place that's larger than a single metro area, but it's especially bad when applied to a place like the United States. Even the larger European countries are much smaller, more compact, and less diverse than than US.
The importance of looking at things on a more local level is perhaps most important when looking at issues of homes and home prices. After all, even people who have never studied housing know that housing tends to be highly dependent on local issues, such as climate, local amenities, and access to employment. Many people already know that a four bedroom house in a nice Cleveland suburb is dirt cheap compared to a house of the same size in, say, San Diego, California.
So, it shouldn't be terribly surprising to find that in many parts of the United States, buying a home continues to be quite affordable by historical standards. This fact has started to attract some attention in recent years. In her column titled "Opting Out of Coastal Madness to Live a Low-Overhead Life," Anne Trubek discusses how its possible to live comfortably on $40,000. But here's the rub. To do this, one has to live in an un-sexy midwestern city — albeit in a neighborhood with tree-lined streets and solid, four-bedroom houses.
Statistical data seems to bear this out as well. In June, the Brookings Institution released a new study showing that housing affordability varies greatly from coastal cities to the American interior. And by coastal, they mean "ocean coast." Living near the coastline of the Great Lakes, apparently brings with it even more affordability:
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Source: Brookings
The basic premise of the research is to analyze affordability based on the fact that "U.S. median house prices have been roughly 2.5 to 4 times median income."Comparing current home prices to incomes in each area, the report concludes:
Metropolitan areas with low price-income ratios are located in very different parts of the country from high-priced metropolitan areas (Figure 5). The lowest ratio metros are mostly located in the Midwest, especially clustered around the Great Lakes, and scattered across Texas. The metros with the highest ratios are primarily along the Pacific and Northeast Atlantic coasts. South Florida, Colorado, and several smaller metros along the Southeast coast also rank among the most expensive areas. Across the U.S., most states have more metro areas with price-income ratios in the normal range (2.4-4.3) than metros with outlying values.
Comparing against incomes, of course, is important. It's surely easy to find places where home prices are at rock-bottom levels — in places with depressed economies.
In this case, however, we'll be looking at incomes in relation to housing prices, and it is not at all a given that places with good job markets must also have unaffordable housing.
Texas, for example, has for years had a substantial amount of employment growth. Yet according to the Brookings report, the state has numerous metro areas with "low" and "very low" price-income ratios on housing.
The focus here is on middle-income families, and on for-purchase housing. Low-income households and renters face a different set of challenges, but even middle-income households may daily be told through the media that housing in the United States is quickly becoming unaffordable. Except those articles and news clips tend to focus on housing in places like Seattle, or along the California coast. And there's no arguing with the assertion that places like that are "unaffordable" for many middle-income people.
And as the Brooking article notes, and as I've noted, the lack of affordability in places like California can often be blamed on state and local government measures designed to limit the construction and diversification of housing. Zoning laws and other regulatory barriers to new housing production have decimated housing affordability of housing in many coastal cities. Cities like San Francisco and Seattle have essentially become playgrounds for the wealthy in which existing homeowners fight tooth and nail any attempt to allow sizable amounts of new housing construction. They do this, they tell us, to preserve "the character of the neighborhood." But what they're really doing is using government regulations to drive up the prices on their own real estate, while driving lower-income people further and further out into the periphery. Oh sure, these Progressive guardians of the local "quality of life" might allow a handful of subsidized housing units to be built. After all, somebody has to make your cappuccino or do your dry cleaning. But the overall effect is to ensure few people can afford to move in.
[RELATED: "How Governments Outlaw Affordable Housing" by Ryan McMaken]
This issue, however, is far less prominent in the un-stylish cities of the interior where city officials still welcome new construction and new housing — and where there's a greater abundance of less-expensive land.
Still Affordable by International Standards I started out by noting it's a bad idea to ignore the enormous regional differences in the United States when considering aggregate data. And that's true.
It is interesting to note, however, that even when we include the price of California and New England coastal housing in our analysis, housing in the United States is still less expensive than in most other wealthy countries.
According to the OECD, housing expenditure in the United States is 18 percent of gross adjusted disposable income. That's the third-lowest in the OECD. Moreover, housing costs in the US by this metric are only 75 percent the size of what they are in Denmark and the United Kingdom. US costs are 78 percent the size of housing costs in Italy.This data point includes rental housing. See: "Better Life Index, Edition 2017" https://stats.oecd.org/Index.aspx?DataSetCode=IDD
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Americans also tend to get more living space for what they pay.
[RELATED: "American Houses Keep Getting Bigger — And so Does American Debt" by Ryan McMaken]
For example, the OECD notes that in the United States, there are on average 2.4 rooms per person. Only Canadians have more rooms per person. In Switzerland, Spain, Denmark, and Japan, however, there are only 1.9 rooms per person. That's one-fifth less than the average in the US.Rate = number of rooms divided by the number of people living in the dwelling. OECD states: "This indicator refers to the number of rooms (excluding kitchenette, scullery/utility room, bathroom, toilet, garage, consulting rooms, office, shop) in a dwelling divided by the number of persons living in the dwelling."
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And the number of rooms aren't the only metric by which US homes are bigger. According to the BBC, floor space in newly built homes in the United Kingdom is less than half of what it is in the United States:
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Federal Policy Favors Those Who can Get Into Expensive Markets As the Brookings report notes, however, federal policy puts homeowners in more affordable markets at a disadvantage by favoring rapidly appreciating real-estate in pricier markets:
In low-priced areas, even families that have paid down their mortgages find it difficult to build wealth. That makes it harder for them to supplement retirement savings or borrow against home equity for their kids’ education. Federal tax policies that strongly favor owner-occupied homes over other asset types are not well suited to support middle-class wealth building in lower-price locations.
Another new study, recently profiled at Bloomberg, shows how post-2008 banking regulations favor building wealth through high-priced real estate over other options, such as building a family business.
So, for middle income people in a city where home prices are not appreciating very much, owners will be at a disadvantage — thanks to federal tax and regulatory policies — more than someone who sacrifices other important household expenses in order to live in a pricey market.
When it comes to simply putting a roof over one's head, however, there are still many markets in the US where it's possible to buy a house at a price that's manageable for middle-income households. It's true that these places are not the glittering stylish cities often featured in movies and sitcoms.
Those places tend to be controlled by wealthy Progressive elites who don't want anyone new moving in.
LondonIsOpen is what you are likely to see branded on bus shelters and underground stations if you were to visit London. The slogan represents a major campaign launched by the Mayor of London, Sadiq Khan to show that London is united and open to business, and to the world, following the decision of the people of the United Kingdom to leave the European Union. In fact, in his Mayoral Election campaign in 2016, Sadiq Khan claimed that he would champion and support business and innovation in London. A big part of his pitch — and popularity with Londoners — was that he was an ordinary person (I lost count of how often he reminded us that he was the son of a bus driver), and that he would be on the side of people on modest incomes.
It is therefore with a great deal of surprise and disappointment to learn last week that he supported the decision of Transport for London (TfL) to revoke the license of Uber in London. TfL, which is the public body responsible for providing and regulating transport in London, revoked Uber’s license as they believed that they were not ‘fit and proper’ to operate in London.
This move by TfL is the latest in a long line of attacks on Uber. Previous steps have involved increasing the waiting time for an Uber, and also making Uber drivers sit tests involving questions about the aurora borealis and river pollution. These actions, and now the ban, have all been introduced under the pretense of protecting the public and helping the Uber drivers themselves. This is arrant nonsense.
TfL and Sadiq Khan have argued that because of Uber’s employment practices, and in order to protect the drivers, that Uber should not be able to operate in London. Although I’m sure that being an Uber driver can involve long hours, and is very unlikely to make you a millionaire, it is seen as a viable job opportunity by tens of thousands of people. 40,000 Londoners currently work as Uber drivers, many of them attracted to it as it offers them flexibility and the opportunity to make extra money. The decision taken by TfL will mean that 40,000 people could soon be out of work. Those who are in favour of revoking Uber’s license have argued that the drivers have little security and are not adequately paid and therefore Uber should be banned from operating in London. Perhaps Uber drivers don’t enjoy the same level of security and remuneration as those on full time security, but when the license is revoked at the end of September then they will have no security and no pay. Revoking Uber’s license will destroy the livelihood of 40,000 people.
This idea that revoking Uber’s license is a good thing because it protects drivers is deeply disturbing. It is breathtakingly patronising to suggest that people should not be able to enter into employment contracts with Uber as they might be exploited. Uber drivers are adults who are capable of making their own decisions about how they choose to live their lives. They are more than capable of weighing up the pros and cons of becoming an Uber driver without the State intervening. It is infantilising to treat Uber drivers as though they are unable to make informed choices about who they choose to work for.
The claim that revoking Uber’s license will protect people is also patently absurd. Uber is used by people such as myself as an affordable and safe way to travel home after a night out with friends or after working late. Before Uber arrived in London getting home late at night could be difficult and dangerous. For example, many people faced the choice of wandering around the dark streets of London in order to hail down a black cab in order to pay the very high fares, or walking home- a decision which could result in becoming a victim of crime. Therefore, countless Londoners have enjoyed being able to use an app to order an Uber to take them to where they needed to go, in the comfort of knowing that there was a record of the journey and that the fare would be reasonable and fixed in advance. Revoking Uber’s license will mean that many Londoners- and especially women- will now face an increased risk of becoming victims of crime (including rape and sexual assault) if they can not afford the fares of black cabs or feel comfortable using them.
This, again, is disturbing in how it patronises and infantilises people. Revoking Uber’s license removes Londoners’ freedom of choice. They should be free to make their own choices about which form of transport to take. TfL’s decision drastically limits their choice.
However, it is not only patronising to passengers, but it will also make them poorer. One of the reasons why Uber is so popular is because it is much cheaper than the alternative of taking a black cab. TfL’s decision has removed one of the black cab’s biggest competitors meaning that they will be able to increase their prices even further. This will result in Londoners having even less money to save or to spend on other things.
TfL and Sadiq Khan claim that they are looking out for Uber drivers and Londoners. In fact, they have caved into pressure from the powerful black cab lobby and the trade unions which are some of Mr Khan’s biggest supporters. The black cab lobby and the trade unions do not care about Londoners or Uber drivers, rather they act like a cartel whose only care about their own wages. They have used their powerful influence to pressure TfL and the Mayor of London to incapacitate their biggest rival in order to re-establish their monopoly in London.
The decision taken by TfL has nothing to do with protecting the people of London. It has caved into pressure from a powerful set of special interests operating like a cartel. The result will be 40,000 drivers out of work and millions of Londoners who are poorer and less safe.
Imagine being a poor person and getting to choose your country. Which one would you select?
The answer probably depends on your goals in life. If you want to emulate “Lazy Robert” and be a moocher, you could pick Denmark. You’ll surely get more than enough money to survive.
Denmark’s also not a bad choice if you have a bit of ambition. It ranks #16 in the latest edition of Economic Freedom of the World, largely because it has a very laissez-faire approach on trade, regulation, and other non-fiscal policies. So there’s a decent chance you could climb the economic ladder.
But if you have lots of ambition and definitely want a better life for your children and grandchildren, you’d presumably pick a nation such as Singapore, which routinely gets very high grades from Economic Freedom of the World.
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There’s a lot of economic liberty, which has resulted in huge improvements in living standards.
Indeed, people in Singapore are now much richer than Americans.
The last thing you would do, however, is pick a stagnant country such as Greece. Or a miserably impoverished nation such as Zimbabwe.
Unless you’re one of the buffoons at Oxfam. That “charity” just produced an inequality study that says Singapore is one of the world’s worst nations, ranking far below places where people are very poor with very bleak lives.
Here’s how Oxfam describes its report.
In 2015, the leaders of 193 governments promised to reduce inequality under Goal 10 of the Sustainable Development Goals (SDGs). Without reducing inequality, meeting SDG 1 to eliminate poverty will be impossible. In 2017, …Oxfam produced the first index to measure the commitment of governments to reduce the gap between the rich and the poor. The index is based on a new database of indicators, now covering 157 countries, which measures government action… The report recommends that all countries should develop national inequality action plans to achieve SDG 10 on reducing inequality. These plans should include delivery of universal, public and free health and education and universal social protection floors. They should be funded by increasing progressive taxation and clamping down on exemptions and tax dodging.
In other words, the study is a measure of whether nations have punitive welfare states, not whether poor people have better lives.
The assertion in the second sentence that poverty can’t be reduced without reducing inequality is especially absurd. Unless, of course, you choose a dishonest definition of poverty (which is what we get from leftist groups like the UN and OECD, not to mention the Equal Welfare Association, Germany’s Institute of Labor Economics, and the Obama Administration).
But let’s focus on Singapore. Here are some excerpts from a Reuters story on the controversy over that nation’s poor score.
Oxfam on Wednesday rejected Singapore’s defense of its low taxes after the NGO ranked the wealthy city state among the 10 worst-offending countries in fuelling inequality with its low-tax regime. Oxfam’s Commitment to Reducing Inequality (CRI) index ranked Singapore 149th of 157, below Afghanistan, Algeria, and Cambodia, and marginally higher than Haiti, Nigeria and Sierra Leone. …Oxfam’s head of inequality policy, Max Lawson, said the impact of Singapore’s tax policy went beyond its borders, serving as a tax haven for the rich and big corporations. …Singapore Social and Family Development Minister Desmond Lee said on Tuesday…“Yes, the income tax burden on Singaporeans is low. And almost half the population do not pay any income tax,”…“Yet, they benefit more than proportionately from the high quality of infrastructure and social support that the state provides,” he said. “In Oxfam’s view, Singapore’s biggest failing is our tax rates, which are not punitive enough.” Lee also said 90 percent of Singaporeans owned their homes and home ownership was 84 percent even among the poorest 10 percent of households. “No other country comes close,” he said.
Minister Lee is correct, of course.
Singapore is a great place to be poor, in part because the bottom 10 percent in Singapore would be middle class or above in many of the nation’s that get better scores from Oxfam’s ideologues. But mostly because it’s a place where it’s possible to become rich rather than remain poor.
There are some other aspects of the Oxfam study that merit attention, including the curious omission of some of the world’s most left-wing nations, such as Venezuela, Cuba, and North Korea.
In the case of North Korea, I’m willing to believe that there simply wasn’t enough reliable data. But why aren’t there scores for Cuba and Venezuela? I strongly suspect that authors deliberately omitted those two hellholes because they didn’t want to deal with the embarrassment of incredibly poor nations getting very high scores (which is what made Jeffrey Sachs’ SDG Index an easy target for mockery)
Also, I’d be curious to learn why Hong Kong isn’t ranked? Taxes are even lower and there’s even less redistribution in Hong Kong, so maybe it would have been last rather than merely in the bottom 10.
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Was Oxfam worried about looking foolish, so they left prosperous Hong Kong out of the study?
That’s my guess. The last thing the left wants is for people to understand that poor nations only become rich nations with free markets and small government.
The bottom line is that Oxfam is an organization that has been hijacked by hard-left activists. Given it’s track record of shoddy reports, it’s now a joke rather than a charity.
P.S. The OECD also produced a shoddy study that grossly mischaracterized Singapore and totally ignored Hong Kong.
Originally published at International Liberty
One of most fascinating aspects of progressives (also known as “liberals”) is the blindness they display to the adverse consequences of their very own government programs. Instead of acknowledging what their statist programs do to people and then calling for their repeal, they inevitably call for new government programs to address the ills that their government programs are causing.
A good example of this phenomenon was an article entitled “The Homelessness Crisis Continues. Maybe Libertarians Have a Solution?” which was published last June by a newsweekly in Seattle called The Stranger. The author of the piece was an associate editor at The Stranger named Eli Sanders. Sanders is no dummy. In 2012 he was awarded a Pulitzer Prize in featured writing. His book, “While the City Slept,” was a finalist for the Washington State Book Award and the Dayton Literary Peace Prize.
Yet, Sanders’ article, which mocks and ridicules libertarians, including me, for their supposed solutions to homelessness is a pathetic display of moral, political, and economic obtuseness. That’s because Sanders, like other statists, simply cannot bring himself to acknowledge and address the two root causes of homelessness, especially in Seattle — zoning and minimum-wage laws, both of which are warmly and enthusiastically embraced by both the left and the right and ardently opposed by libertarians.
What does Sanders say in his anti-libertarian screed? Ignoring libertarian calls for repeal of zoning and minimum-wage laws, he instead lists a number of other supposed libertarian solutions to homelessness, such as “giving homeless people guns,” “doing nothing,” “empowering individuals,” and “ending income taxation” (where he mentions me), all the while implicitly mocking and ridiculing libertarians for not coming up with real solutions to homelessness.
Why does Sanders choose to remain silent about libertarian opposition to zoning laws and minimum-wage laws in the context of the homelessness debate?
The answer is simple: Whether we are dealing with the drug war, the war on poverty, the forever wars on Iraq and Afghanistan, the war on immigrants, or any other statist program, statists have a terribly difficult time acknowledging the failure and destructiveness of their own government programs. They will do everything they can to avoid taking personal responsibility for what their statism has wrought.
The fact is that Seattle is one of the most zoned cities in the country. Its zoning laws date back to 1923! It also has a mandatory minimum wage of $11.50 an hour, with it slated to increase to $15 over the next several years. Surely, Sanders realizes these things. The problem is that his mindset prevents him from connecting the dots. Given that the minimum wage and zoning are so deeply embedded within the statist mindset and within Seattle society, he is unable to bring himself to recognize that these two statist programs are the root cause of the problem he laments — homelessness — and that the solution to homelessness, especially in Seattle, lies in simply repealing the city’s zoning laws and abolishing the national, state, and local minimum-wage laws.
What is zoning? It is a government program that consists of mandatory rules, regulations, and laws that prevents or inhibits low-income housing from being built within a community. It obviously doesn’t occur to Sanders that builders cannot build low-cost housing for the poor in Seattle when zoning laws prohibit them from doing so.
The situation is aggravated by the fact that the poor are locked out of the labor market by the government’s mandatory minimum wage. Suppose, for example, that a homeless man is willing to work for $5 an hour and that an employer is willing to hire him at that price. They can’t make the deal because the law makes it illegal for them to enter into that consensual transaction.
The progressive says, “We are just trying to protect the poor from being exploited.” But that’s ridiculous because a person’s whose labor is not valued by employers at the mandatory minimum isn’t going to be hired at all. He goes unemployed, permanently. The minimum wage law is the reason why there has been a chronic, permanent unemployment rate of 30-40 percent among black teenagers for years. At the risk of belaboring the obvious, an unemployed person is prevented from earning the money he needs for a down payment on those expensive single-family homes that Seattle’s zoning laws mandate. Duh!
I grew up in Laredo, Texas, which the Census Bureau in the 1950s labeled the poorest city in the United States. Laredo did not have zoning. We had a family friend who was a builder. His specialty? Building low-income housing for the poor. He once explained to me that he would travel into Mexico (Laredo is situated on the border) and purchase low-cost building supplies, which enabled him to build low-priced housing that served poor people. His places were always super-clean, super-nice, super-maintained, and super-sold out.
Was my friend doing this out of a sense of altruism and love for the poor? On the contrary. He was doing it to make money. He was the classic example of what people on the left call a no-good, capitalist, profit-seeking, bourgeois swine. And my friend was a wealthy man because poor people loved his housing.
Among the best aspects of my friend’s low-cost housing was that residents weren’t prohibited from making too much money, as people are who live in the federal government’s public housing projects, another favorite program among statists, one that is called into existence to address the homelessness that comes with zoning laws and minimum-wage laws.
Oh, maybe I should mention something that might interest Sanders: There was never a homelessness problem in Laredo. Lots of poverty, yes. But never a homeless problem, like the one that exists in Seattle, with its statist programs of massive zoning and minimum-wage laws.
Let me conclude this article by stating that I plan to send it to Eli Sanders. I’m curious as to whether he would like to write a follow-up piece addressing the actual two main libertarian positions to end homelessness in Seattle: Repeal the city’s zoning laws and all minimum-wage laws. Don’t hold your breath. It’s easier for leftists to attack straw men than to confront the consequences of their favorite statist programs.
Originally published by the Future of Freedom Foundation.
One of the defining characteristics of advocates for socialism is an obsession with equality. According to this line of thinking, inequality is the central problem of the modern world, and it demands a centralized solution. Thus, socialists—and more mild social democrats—push to use the power of the state to force the transfer of wealth from the productive and successful to those who are less so. This is the way to achieve social justice, they contend.
But inequality is not the societal plague that socialists allege it to be.
The Source of Wealth: Consumer Judgment Contrary to popular belief, the way to make money is not to exploit one’s customers. The reality is the opposite. Wealth is created by identifying the problems that people have and creating products that provide a solution and improve their lives.
In this process, the consumer leads the process by expressing his own preferences in the marketplace. If a consumer feels that a product is overpriced, he will not make an exchange. If a product seems worthwhile, he will buy it willingly. The sum of these individual choices—to purchase or not—make or break a business on the market, and this is the consumers’ prerogative. In order to meet his own needs, a person must produce something that satisfies another’s needs, whether they be labor, industrial machinery, or fine cuff links.
Does Wealth Accrue at the Expense of the Poor? One of the socialists’ key assumptions is that there is always a losing side in a transaction. They think that wealth is like a pie, and that the rich take the largest slice, leaving workers and customers with almost nothing. In reality the market is always expanding the pie, and voluntary exchanges are always win-win when they are made.
Bill Gates, Jeff Bezos, and all the other “evil capitalists” have managed to create an unprecedented amount of wealth, but not only for themselves. Those working for them have benefited from their jobs, and the people who buy their products and services have benefited from better or cheaper goods (or both). Other benefits include more time to pursue more important things, and in ways that cannot be quantified (i.e., they are measured in psychic profit). The entrepreneurs, in turn, have benefited from the services of their workers—which are well worth paying for. Entrepreneurs also benefit from the voluntary purchases made by their customers.
Profit and Competition Are Not Antithetical to Collaboration Socialists pit profit and competition against an ideal of sharing and collaboration. But rather than being a wicked, stolen good, profit is a crucial incentive for collaborative human action.
People are always searching for the best and cheapest products in order to satisfy their needs, and their demands raise prices. The prospect of profit quickly pushes entrepreneurs into producing what people want—and what they are willing to pay for. Profits illustrate how much people value an entrepreneur’s services. Consumers only pay if the entrepreneur satisfies their desires.
As long as there are profits to be made, others enter the market. The competition spurs entrepreneurs to make production more efficient and cheaper, because the greater the competition, the more the businessman will have to do to earn the customer’s business. As more goods enter the market, consumers can be more picky about whom to purchase from, and prices drop. It’s their own demand that sets the prices, and once they are satisfied and there’s not as much profit in the business, entrepreneurs shift to making other things that people want.
As many Austrian and non-Austrian economists have figured out, the market is an everyday “voting system” of what needs to be produced. Every penny acts as a vote for how best to use limited resources. Profits point entrepreneurs toward what people want most badly. The resulting production is a form of collaboration rather than exploitation. People can do more, because they don’t have to do everything themselves, and they can focus on what they do best.
Income Inequality Is Heightened by a Restrained Market The Left makes the mistake of arguing that only the rich have gotten richer and attack capitalism without looking at the facts. The market has made nearly everyone richer, not only in terms of income but also in terms of the overall quality of life and the products that they own.
Leftists also ignore income mobility in market economies, when studies show that in fact most people born to the richest fifth of Americans fall out of that bracket within twenty years while most of those born to the poorest fifth climb to a higher quintile and even to the top.
Though their rhetoric makes it seem surprising, this makes sense. As Ludwig von Mises pointed out in The Anti-Capitalistic Mentality, the businessman owes his wealth to his customers, and this wealth is inevitably lost or diminished when others enter the market who can better satisfy the consumer through lower prices and/or a better quality of goods and services.
The problem with income inequality today is that it isn’t entirely a byproduct of the free market but instead is the result of a market crippled by interventionist policies, such as regulations, expensive licenses, and the most complicated tax system in the history of this country. Such restrictions have limited competition and made wealth creation more difficult, causing the stagnation of the middle and lower classes.
Though leftists contend that these restrictions protect people from the “dangers” of the free market, they actually protect the corporate interests that progressives claim to stand against.
Colossal businesses like Amazon and Walmart in fact favor higher minimum wages and increased regulations. They have the funds to implement them with ease, and such regulations end up acting as a protective barrier, keeping startups and potential competitors from entering the market. With competition blocked, these businesses can grow artificially large and don’t have to work as hard to earn people’s business. Instead they can spend money on lawyers and DC lobbyists to fence small businesses out of the market.
Ironically, efforts to regulate businesses in the name of protecting laborers and consumers harms small businesses and makes everyone less equal than they could be in a free market.
Conclusion Markets are not the enemy of equality. Regulated markets are. The income inequality that naturally occurs in the free market as a result of human uniqueness is needlessly amplified by restrictive government policies to the detriment of all.
Voluntary exchanges in capitalism are mutually advantageous. If they weren’t, the exchange would never take place. People who live in countries with more economic and social freedom enjoy greater incomes and a higher standard of living. Free trade has contributed more to the alleviation of poverty than have all the government-run programs. Socialist intervention in the market can only distance man from eradicating poverty and from happiness: only unrestrained competition driven by profit can bring about the expansion of choice, the fall in prices, and the increased satisfaction that make us wealthier.
“Fortunes cannot grow; someone has to increase them. For this the successful activity of an entrepreneur is needed. The capital reproduces itself, bears fruit and increases only so long as successful and lucky investment endures.” – Ludwig von Mises, Socialism, p. 340
In a recent edition of the New York Times, it was reported that there were 1.7 million cancer diagnoses last year. Imagine for a moment the agony that followed the doctor visits during which the bad news was relayed, the subsequent sleepless nights for those diagnosed along with their family members, not to mention the life-altering cruelty of death itself.
And while all of the above doesn’t come close to articulating the trauma associated with a cancer diagnosis, along with what ensues, it’s a useful way to pose a basic question: assuming someone of remarkable mind were to divine a cure for cancer, would anyone reading this opinion piece blanch at such an advance? The question is rhetorical. No sane person would look askance at that which would spare so many so much emotional and physical agony.
Ok, but what if the genius behind the cure for the modern “Captain of Men’s Death” (the phrase once used to describe pneumonia) were set to become a billionaire many times over for his advance. Would anyone look askance? The question is yet again rhetorical.
All of this came to mind while reading investor extraordinaire Ray Dalio’s (a billionaire many, many times over) recent comments about inequality. To believe this most talented of individuals, “widening income/wealth/opportunity gaps” supposedly “pose existential threats to the United States.” We truly live in an alarmist age.
Such a comment is not worthy of Dalio’s certain genius. Implicit in what’s overdone is that countries known for economic equality are greater magnets for the world’s desperate than is the United States. Except that they’re not. Dalio expresses a belief in markets and capitalism, yet easily the purest market signal of all is where the poor and striving go in order to erase their poverty.
That the world’s tired and hungry have for over 200 years been risking it all (including their lives) in order to get to the United States exists as a rather inconvenient truth for Dalio. Indeed, if massive wealth accumulation truly had a negative societal impact, particularly on the poorest, then it’s a certainty that so many of the world’s indigent wouldn’t view the opportunity to live in one of the world’s most unequal countries (that would be the United States) as the equivalent of winning the lottery.
Stated simply, surging wealth inequality doesn’t harm the poor and middle classes; rather it’s the greatest enemy of grinding want that mankind has ever known. As Dalio should know well through his investment success, wealth in a capitalist society is an effect of the talented mass producing the former baubles of the extraordinarily well-to-do. Along these lines, surging wealth inequality is a certain sign of plummeting lifestyle inequality as the poor and middle class increasingly enjoy the comforts that were once the sole preserve of the superrich. Rest assured that in Dalio’s lifetime, assuming he’s around another 10 or 15 years, the regular people will – thanks to a billionaire entrepreneur of the future - increasingly pass Dalio’s private jet in their own. Bank on it.
Still, for reasons not well stated, Dalio views inequality as some kind of existential threat. He doesn’t explain how it is, and he doesn’t because there’s no reasonable way to make a case that rising living standards alongside rising lifestyle equality is a bad thing. And since Dalio’s not calling for a 100% capital gains tax rate (thus penalizing tomorrow’s superrich entrepreneurs ever in need of capital), or the abolishment of the internet (thus restricting the Jeff Bezos’s of tomorrow from meeting the needs of the….world), his expressed fears about inequality are more than a bit over the top. One might even say he’s pandering.
Whatever the answer, there’s a simple solution for Dalio if he fears inequality. And it doesn’t have anything to do with something so damaging as him overpaying his federal tax bill by many billions, or something so trite as him signing the “Giving Pledge.”
In Dalio’s case, he should invest in the riskiest ventures he can find. Someone in Dalio’s position is no doubt inundated with investment opportunities, and it’s not unreasonable to suggest that some of them are focused on cures for cancer, paralysis, and heart disease, along with all manner of other forward-looking commercial ideas that would render wind, solar AND oil yesterday’s news, the internet rather primitive, and the jet airplanes of today Ford Pinto quality relative to what they'll eventually be.
Precisely because Dalio is so remarkably unequal and rich, money in his hands is exponentially different than it is in the hands of just about anyone else. Getting right to the point, Dalio has billions that he can lose on the most intrepid of all ventures. He can do this without seeing any reasonable decline in his lifestyle.
Will these investments succeed? Actually, most will fail. Almost by definition. The belly-up rate will almost certainly exceed 90%, which speaks to the genius of Dalio dialing up the risk. No doubt he’ll lose billions at first, but the future wellbeing of the world’s inhabitants will soar as his investments – successful and unsuccessful – unearth voluminous information that will get us closer to cancer, paralysis and heart disease cures, transportation advances, communications advances with the potential to make 5G dial-up by comparison…Readers hopefully get the picture. If inequality keeps Dalio up at night, he could shrink his holdings through bold capital allocations aggressively focused on changing how we live, work, fly, and play.
And what if Dalio’s investments succeed? All the better. No doubt he’ll have even more wealth at his disposal, and theoretically (by his standards) society will be worse off for it being even more unequal. If so, brilliant. With multiples of $18 billion, Dalio could direct the fruits of his genius to even bigger drivers of unease and death in the world.
Originally published at Real Clear Markets
Some intellectuals, especially on the left, continue to claim that the West’s economic development would have been impossible without the resources extracted unjustly from the developing world, also known as the “Third World.” Even nuanced thinkers may automatically presume these assumptions to be true.
Certainly, overt exploitation of conquered victims occurred during the apex of Western imperialism. Yet such examples fail to buttress the claim that the West is the cause of underdevelopment in the Third World. Therefore, to determine the validity of postulates popularized by left-leaning activists we must answer three important questions: (1) Did the West need to exploit the Third World for its development? (2) To what extent can colonialism explain the state of the developing world? and (3) Are critics right to argue that capitalism is hindering progress in the Third World?
Numerous intellectuals aver that the development of the West required the harnessing of resources in the Third World. However in Economics and World History: Myths and Paradoxes (1995) economist Paul Bairoch aptly refutes this trope:
There is a widespread belief that the development of the Western world especially its industrialization, was based for a very long period on raw materials from the Third World….Contrary to widespread opinion, all this is a fairly recent phenomenon. As late as the immediate post-World War II period, the developed countries (even in the West) were almost totally self-sufficient in energy. Until the end of the 1930s, the developed world produced more energy than it consumed and had a sizeable export surplus in energy products, especially coal, while one of the major exporters was one of the most industrialized countries: the United Kingdom.
In fact, Bairoch describes the trading relationship between the Third World and the West as modest by Bairoch. He writes:
During the period from 1800–1938, only 17% of total exports were sent to the Third World and of those, only half to the colonies, which means that only 9% of total European exports went to the colonial empires. Since during this period total exports represented some 8-9% of the GNP of the developed countries, it can be estimated that exports to the Third World represented only 1.3–1.7% of the total volume of production of those developed countries, and exports to the colonies only 0.6–0.9%.
In reality, Third World colonies were actually quite expensive for colonial powers. Philip R.P. Coelho in his article "The Profitability of Imperialism: The British Experience in the West Indies 1768–1772," notes that colonialism was a liability for Britain,
the costs of British colonies in the BWI [British West Indies]were borne by the consumers of sugar and taxpayers…BWI planters were the main beneficiaries of British colonialism. Their benefits consisted of a higher price for sugar than they would have received on the world market, and the protection provided by the British military.
Fellow economists Lance E. Davis and Robert A. Huttenback also agree that imperialism was a wasteful venture.
Colonial adventurism was never a source of vast profit for the imperial governments. The people’s representatives grudgingly accepted a responsibility that was very popular with their constituents, but empires cost a lot of money – and volunteers to share the expense were hard to find.
Instead of enriching Western powers, colonies retarded economic growth. According to Bairoch,
If one compares the rate of growth during the nineteenth century it appears that non-colonial countries had, as a rule, a more rapid economic development than colonial ones….Thus colonial countries like Britain, France, Portugal, the Netherlands, and Spain have been characterized by a slower rate of economic growth than Belgium, Germany, Sweden, Switzerland, and the United States….Thus Belgium by joining the colonial "club" in the first years of the twentieth century, also became a member of the group characterized by slow growth.
Evidently, the evidence indicates that Third World countries were marginal to the West. Moreover, economic historians have long argued that the ingredients explaining the rise of the West were present as early as the medieval ages. When comparing institutional efficiency in medieval Europe, economist Jan Luiten van Zanden writes, “the view that Western Europe had already acquired an institutional framework that was relatively efficient in the Middle Ages – more efficient than institutions regulating the capital market and property rights elsewhere – seems to be confirmed by the evidence on interest rates.’’ Though difficult for some to grasp, economic progress is not the outcome of exploitation, but rather a culmination of diverse factors ranging from geography to institutions.
Likewise, the specter of colonialism continues to elicit intense emotions, but few ponder the extent to which colonialism can be held liable for challenges in the developing world. On the other hand, even, fewer radicals do not attribute crises in former colonies to a reason other than colonialism. Colonial rule sought to maintain hegemony by fostering ethnic tensions, thus serving to promote distrust and reduce confidence in the state. To many, the divisive nature of colonial rule is sufficient to indicate that colonialism is the basis of problems in developing countries. Scrutinizing the data, however, will reveal that the matter is far more complicated. The origins of some wars in Africa, for example, are traceable to colonialism but only to a degree. Colonialism cannot explain all forms of violence on the continent. Leading sociologists Matthew Lange and Andrew Dawson in a recent paper found that colonialism is not the underlying cause of violence in all cases:
We provide evidence against sweeping claims that colonialism is a universal cause of civil violence but find that some forms of colonialism appear to have increased the risk and intensity of some forms of civil violence….Whereas our findings provide evidence that a history of colonialism promotes inter-communal conflict, our results for the level of political rebellion and years of civil war per decade are much less conclusive….There is no statistically significant difference in the level of rebellion or years of civil war between former colonies and non-colonies. Moreover, when we divide former colonies according to the identity of the colonizer, we find that there is no statistically significant difference in years of civil war and level of rebellion between non-colonies and former colonies of Great Britain, France, and minor colonial powers.
Scholars must be reminded that in some instances there is not a root cause, but rather a multiplicity of causes. Greater primacy should also be given to the role of precolonial institutions in shaping development in Third World countries. An analysis of the impact of colonialism on Africa reveals that
the relevance of colonial legacies to institutional quality and to per capita income is rapidly disappearing in Africa. Differences in institutional quality or income are explained less and less by colonial legacy, while there is some evidence that pre-colonial social and geographic circumstances are becoming more important.
There may be great consensus in economics that institutions established by colonialists determine contemporary economic growth, but some researchers promulgate a counterthesis worthy of exploration. As one study asserts, “our findings run counter to the institutions hypothesis of economic development, showing instead that geography affected both historic mortality rates and present-day economic output.” If activists are interested in assisting the developing world, then it suits them to pay significant attention to rigorous data and not flippant politics.
Interestingly, whenever colonialism is being discussed, we rarely hear about any of its benefits. Colonialism produced many negative effects, yet the positives cannot be discounted. Research suggests that “on net, any negative extractive effects from minority European settlements on economic development today are dominated by other things Europeans brought with them. We find the positive effect of Europeans during colonization on economic development today becomes larger – not smaller or negative – when examining only former colonies in which the European share of the population during the colonial period was small or zero.” Additionally, Nathan Nunn and other economists have demonstrated that educational attainment increased in the developing world during the colonial period, due to the pivotal role of Protestant missionaries in establishing learning institutions.
Left-leaning critics also claim that capitalism exploits Third World countries, and that development will elude the Third World unless global capitalism is eradicated. This perspective is quite risible, since studies argue that poor countries can become rich by removing barriers to trade and penetrating the global market. Writing for the World Bank, economist David Dollar cogently argues that promarket reforms spur growth in developing countries. “Some of the most compelling evidence comes from case studies that show how this process can work in particular countries. Among the countries that were very poor in 1980, China, India, Uganda, and Vietnam provide an interesting range of examples.” Similarly, an assessment of Sub-Saharan Africa informs us that economic freedom is the best strategy for achieving inclusive growth. According to the study, there is evidence for “a causal relationship from economic freedom to inclusive growth but not the other way around.” Free markets and not centralization improve the conditions of citizens in the developing world.
Western countries were able to pursue colonial ventures, because they were already rich. Hence colonialism was a consequence and not the genesis of Western development. However, myths about the relationship between the West and the Third World persist to advance political agendas. Depicting Third World countries as victims may stroke the egos of incompetent leaders or even boost the profiles of Western politicians who provide foreign aid. But promoting economic and historical inaccuracies will only increase the income gap between rich and poor countries by making Third World leaders unaccountable for their follies. The good news for Third World countries is that the experience of the West shows that progress is possible without exploiting weaker states.
A couple of months ago, I thought I did something meaningful by sharing six separate examples of the International Monetary Fund pressuring sub-Saharan African nations to impose higher tax burdens. This was evidence, I suggested, that the IMF had a disturbing agenda of bigger government for the entire region.
I didn’t imply the bureaucrats were motivated by racism. After all, the IMF has pushed for higher taxes in the United States, in China, in Latin America, in the Middle East, and in Europe. (Folks who work at the IMF don’t pay taxes on their own salaries, but they clearly believe in equal opportunity when urging higher taxes for everyone else).
Nonetheless, I thought it was scandalous that the IMF was systematically agitating for taxes in a region that desperately needs more investment and entrepreneurship. And my six examples were proof of a continent-wide agenda!
But it turns out that I wasn’t exposing some sort of sinister secret. The IMF just published a new report where the bureaucrats openly argue that there should be big tax hikes in all sub-Saharan nations.
Domestic revenue mobilization is one of the most pressing policy challenges facing sub-Saharan African countries. …The region as a whole could mobilize about 3 to 5 percent of GDP, on average, in additional revenues. …Domestic revenue mobilization should be a key component of any fiscal consolidation strategy. Absent adequate efforts to raise domestic revenues, fiscal consolidation tends to rely excessively on reductions in public spending.
Notice, by the way, the term “domestic revenue mobilization.” Such a charming euphemism for higher taxes.
And it’s also worth pointing out that the IMF openly urges more revenue so that governments don’t have to impose spending restraint.
Moreover, the IMF is happy that there have been “substantial gains in revenue mobilization” over the past two decades.
Over the past three decades, many sub-Saharan African countries have achieved substantial gains in revenue mobilization. For the median sub-Saharan African economy, total revenue excluding grants increased from around 14 percent of GDP in the mid-1990s, to more than 18 percent in 2016, while tax revenue increased from 11 to 15 percent. …Two-thirds of sub-Saharan African countries now have revenue ratios above 15 percent, compared with fewer than half in 1995. …The region still has the lowest revenue-to-GDP ratio compared to other regions in the world. The good news is that there are signs of convergence. Over the past three decades, the increase in sub-Saharan Africa’s revenue ratio has been double that for all emerging market and developing economies.
To the bureaucrats at the IMF, the “convergence” toward higher taxes is “good news.”
However, there is some data in the report that is genuine good news.
In most regions of the world, there has been a trend in recent years toward reducing rates for the CIT and the personal income tax (PIT). In sub-Saharan African countries, the average top PIT rate has been reduced from about 44 to 32 percent since 2000, while average top CIT rates have been reduced by more than 5 percentage points during the same period.
Here are two charts showing the decline in tax rates, not only in Africa, but in most other regions.
By the way, the IMF bureaucrats appear to be surprised that revenues went up as tax rates went down. I guess they’ve never heard of the Laffer Curve.
Despite this decline in rates, total direct taxes (PIT and CIT) as a percentage of GDP have been trending upward.
But the IMF obviously didn’t learn from this evidence (or from the evidence it shared last year).
Rather than proposing lower tax rates, the report urges a plethora of tax hikes.
Successful experiences in revenue mobilization have relied on efforts to implement broad-based VATs, gradually expand the base for direct taxes (CIT and PIT), and implement a system to tax small businesses and levy excises on a few key items.
Wow. I don’t know what’s worse, claiming that tax increases are good for growth, or pushing higher taxes in the world’s poorest region.
Let’s close by debunking the IMF’s absurd contention that bigger government would be good for Africa.
I suppose the simplest response would be to share my video series about the economics of government spending, especially since I cite a wealth of academic research.
But let’s take an even simpler approach. The IMF report complained that governments in sub-Saharan Africa don’t have enough money to spend.
The good news, as illustrated by this chart (based on data from the bureaucracy’s World Economic Outlook database), is that the IMF is accurate about relative fiscal burdens.
The bad news is that the IMF wants us to believe that a low fiscal burden is a bad thing. The bureaucrats at the IMF (and at other international bureaucracies) actually want people to believe that bigger government means more prosperity. Which is why the report urges big tax hikes.
But you won’t be surprised to learn that the IMF doesn’t provide any evidence for this bizarre assertion.
Though I’ve had folks on the left sometimes tell me that bigger government must be good for growth because rich nations in the western world have bigger governments while poor nations in Africa have comparatively small governments.
If you want to get in the weeds of public finance theory, the IMF bureaucrats are misinterpreting Wagner’s Law.
But there’s no need to delve into theory. When people make this assertion to me, I challenge them to identify a poor nation that ever became a rich nation with big government.
It’s true, of course, that there are rich nations that have big governments, but all of those countries became rich in the 1800s when government was very small and welfare state programs were basically nonexistent.
So let’s take the previous chart, which supposedly showed too little spending in sub-Saharan Africa, and add another column (in red) showing the level of government spending in North America and Western Europe in the 1800s.
The obvious takeaway is that African nations should cut taxes and reducing spending. The exact opposite of what the IMF recommends.
In other words, the IMF’s agenda of bigger government and higher taxes is a recipe for continued poverty.
But keep in mind that fiscal policy is just one piece of the puzzle. As explained in Economic Freedom of the World, a nation’s prosperity also is affected by regulatory policy, trade policy, monetary policy, and quality of governance.
And nations in sub-Saharan Africa generally score even lower in those areas than they do for fiscal policy. So while those countries should reduce their fiscal burdens, it’s probably even more important for them to address other policy mistakes.
To end on an upbeat note, here’s a video from Reason about how free markets can help bring prosperity to Africa.
I also recommend this video from the Center for Freedom and Prosperity since it does a great job of debunking the argument that higher taxes and bigger government are a recipe for prosperity.
And this video about Botswana is a good case study of how African nations can enjoy more prosperity with market-oriented policy.
Originally published at International Liberty
In the wake of hurricane Harvey, disaster experts were shocked by how few deaths resulted from the storm: "“It was astounding that we didn’t have a much larger loss of life,” said Phil Bedient, co-director of a Rice University effort to research severe storms and evacuations.
A recent count puts total storm-related deaths at 82, out of a metropolitan population of more than 6.5 million.
The relative lack of lives lost is being attributed to a variety of factors including luck, the timing of evacuation orders, and "swift action by first responders."
There's no doubt that these factors contributed to the relatively low numbers in terms of deaths. A well-developed communications system has been key. A large network of well-maintained highways has been important, as has a technologically-advanced and well equipped rescue operation. Hospitals kept the lights on because they installed costly "flood gates."
Some anti-libertarian observers, of course, have used the disaster as an opportunity to claim that people who survived the disaster somehow owe their lives to government agencies. Roads and the Coast Guard rescuers are government-controlled amenities, after all.
David Horsey at the LA Times provides a typical example, claiming that Hurricane Harvey " exposed the weakness of the three [Republican] shibboleths." Horsey specifically names "Republicans" but he's really targeting anyone who values markets and political decentralization. For Horsey, natural disasters disprove the following:
1) lowering taxes is always a good idea, 2) government programs can always be cut and 3) economic growth must always be given priority over environmental concerns.
These "anti-government" hypocrites, Horsey contends, have no problem receiving federal help in the wake of natural disasters, but cluelessly call for tax cuts while refusing to spend big bucks on combating climate change — which is apparently to blame for Hurricane Harvey.
Pro-Growth Policies Fund Disaster RecoveryUnfortunately, for Horsey, this "analysis" is hopelessly superficial and fails to recognize that a focus on economic growth and low taxes are the reason that the Houston area just endured an immensely strong hurricane with relatively few deaths.
Contrary to Horsey's assumption that Houston will require the fruits of a centrally-planned interventionist economy to recover, the truth is that Houston and Texas will recover quickly precisely because of the region's wealth born out of a longterm commitment to developing markets, and embracing economic growth.
As we've already seen, Texas and Houston are among the wealthiest places on earth, and could easily deal with their own disaster recovery without federal "help."
The immense amounts of capital built up in both Greater Houston and in Texas will be essential in rebuilding and recovering from the disasters.
Moreover, even if we accept that government agencies played their part in lessening the disaster's effects — as with some rescue crews and the presence of reliable transportation infrastructure — the question we have to ask ourselves is this: "who paid for all those roads, that emergency warning system, and those emergency personnel?"
It was, of course, the taxpayers who made all that possible, and thanks to pro-growth policies, the wealth of the taxpayers was large enough that even an inefficient system of government taxation and spending could produce useful roads and emergency services. If we're going to spend money on high-quality government amenities, we can't do that unless we create the wealth first.
Now, let's contrast the situation in Texas with that in a variety of low-income countries where economic growth is, to say the least, less robust.
According to Reuters:
An analysis of more than 7,000 disasters over the past two decades, in which 1.35 million people died, showed 90 percent of those deaths occurred in low and middle-income countries. Ban called it “a damning indictment of inequality ... High-income countries suffer huge economic losses in disasters, but people in low-income countries pay with their lives...”
So why don't these countries just pass laws laws funding better emergency services, better roads, and more rescue operations?
If fixing environmental problems is just a matter of creating more government intervention, why don't these poor countries do that? Why not create more roads for easy escape? Why not create a better public communications system? Why not fund a better coast guard?
The answer, of course, is that no matter how many laws you pass dictating the creation of top-notch disaster relief services, wealth cannot be created out of nothing. Without robust and relatively-free markets, there simply won't be enough resources to draw upon when disasters do strike.
Thanks to markets, industrialization, and reliable property rights, wealthy countries produce surpluses that can be used to to create and foster knowledge, equipment, and personnel who can deal with natural disasters.This description applies to virtually the entire industrialized West. The word socialist is commonly mis-applied to many modern Western states that are merely interventionist states. Contrary to the myth perpetuated by Bernie Sanders, Denmark, for example, is for the most part "a market economy."
Poor countries with undeveloped markets can't do this.
The Real Answer to Global Warming? Build Wealth The advantages of wealthy countries highlight the importance of pro-growth policies in combating natural disasters — whether caused by global warming or not.
Now, it wasn't that long ago that we were being told that global warming was producing fewer hurricanes. Now we're being told they're not so sure. The physical scientists can't make up their minds.
But, for the sake of argument, let's say that global warming is making hurricanes and flooding worse. What's the proper solution?
The answer of many global warming activists — many of whom are physical scientists and know nothing about economics or public policy — is to drive up the cost of energy, increase the cost of living, drive down living standards, and thus somehow "correct" global temperatures.
But, as we've seen, if we're really concerned about helping people affected by natural disasters, a more realistic strategy is to embrace a pro-growth and wealth-building posture that will allow populations to better deal with the effects of natural disasters.
Thus we are faced with two options. One option is to embrace a sketchy, unproven plan to manipulate global temperatures. Another option — a more reliable, and more proven strategy — would be to help populations build and foster the capital necessary to avoid problems with the worst deprivations of natural disasters. This is necessary to fund adequate transportation and rescue services, of course, but it's also important in dealing with other related issues such as adequate drainage infrastructure and unchecked erosion due to deforestation.
Erosion control is well within the means of wealthy countries. As is producing a workable drainage system.Even if one believes the media claims that Houston has an obsolete drainage system, the fact remains that the City of Houston and State of Texas possess more than enough resources necessary to address the issue.
There are goals that are actually attainable, unlike pie-in-sky plans for a managed global climate.
The solution therefore, lies in helping poor populations continue to modernize, build wealth, and reduce extreme poverty. Globally, thanks to globalization and the spread of markets, extreme poverty continues to decline coupled with improvements in access to clean water, growth in literacy, as access to clean water, and declines in child mortality.
As the US endures floods, hurricanes, wildfires, and other disasters, its ability to bounce back will depend on the country's ability to produce wealth and put that wealth to use in rebuilding. The same is true everywhere else.
Many critics of capitalism have given up trying to claim capitalism makes people poorer. Faced with so many obvious gains in the standard of living, and in reducing poverty worldwide, markets have won the economic debate over whether or not capitalism is the path to material riches.
But the doctrinaire anti-capitalists have other strategies. They've now branched out into blaming capitalism for a host of other social, ecological, and psychological ills.
Sometimes, the tactic is to blame capitalism for destroying the earth. Other times, it's to claim that capitalism, in spite of the material plenty it delivers, makes us miserable.
For example, George Monbiot, columnist at The Guardian blames pro-capitalist ideology for making people, sad, lonely, and unhealthy. Writers cite polls claiming people in richer countries — i.e., more capitalistic ones — are more miserable than people elsewhere. Holly Baxter at The Independent suggests capitalism is the reason elderly people are now so lonely and isolated: capitalism makes us more concerned with buying things than with visiting poor, dying Aunt Ethel.
Claim: Capitalism Wants Us to Be Sad, Needy Consumers And it's all by design, it seems. According to Monbiot and other critics of "neoliberalism" — by which they just mean anything resembling a market system — the capitalist ideology is designed to isolate us, and turn us into soulless consumers. This then paves the way for an endless cycle of misery and consumption.
For a more academic phrasing of this idea, we could consult Ankita Singh's article "Capitalism, Consumerism, and Popular Culture" which examines how capitalism creates a downward cycle of despair. This persistent unhappiness, Singh explains, "is caused [by] the sense of alienation one feels in today’s urban corporate culture." Consequently, consumers attempt to "compensate" for their capitalism-caused "emptiness" by "indulg[ing] in inanimate objects offered by the consumerist culture."
At this point, all that is left for the capitalists to do is to tell us what products to buy. And fortunately for the capitalists, Singh tells us: "The power of advertising is such that it can create a demand where none exists, of a commodity which is not needed."Singh calls to mind a line from the 1999 film Fight Club in which a main character declares modern workers in a capitalistic system are "slaves with white collars. Advertising has us chasing cars and clothes. Working jobs we hate so that we can buy sh-t we don’t need."
Much of this general concept can be traced back to Marxist psychologist Erich Fromm, who in Escape from Freedom (1941) wrote:
In capitalism economic activity, success, material gains, become ends in themselves. It becomes man’s fate to contribute to the growth of the economic system, to amass capital, not for purposes of his own happiness or salvation, but as an end in itself.
That is, through capitalism and its propagandists (i.e., advertisers) human beings are reduced to "a cog in the vast economic machine" who no longer pursues his own happiness, but only serves the interests of "capitalism."
There are a couple of problems with this theory, though.
One is that a capitalist economy does not rely on endless consumption to sustain itself. The second is that advertising doesn't work the way many assume it does.
Capitalism Doesn't Cause Consumerism For starters, it is not the case that the capitalist system is built on consumption or that it requires us to mortgage our future in order to buy ever-larger amounts of consumer goods. After all, it is for a good reason that capitalism has historically been much associated with misers — the quintessential literary example being Ebenezer Scrooge — who shunned consumerism. Saving (i.e., deferred spending) is every bit as essential to capitalism as is consumption. It is governments and their central banks, not markets, that seek to maximize consumption always and everywhere.
[RELATED: "Capitalism Doesn't Cause Consumerism — Governments Do" by Ryan McMaken]
Moreover, saving and investment are key ingredients in increasing wages, growing the capital stock, and increasing future consumption. In a market economy, many firms, such as retirement funds and banks, directly profit from more saving and investment.
Spending every last dime on another trinket or bauble is not a recipe for robust capitalism.
How Advertisers Are Supposedly Making Us Miserable At this point, the purveyor of the capitalism-makes-you-sad theory could still insist: "sure, maybe capitalism overall doesn't require us to relentlessly consume. But certainly there's a portion of the capitalist system, such as toy sellers and auto makers, who need us to consume. And to get us to do so, they use advertising designed to keep us hoping we can fill that hole in our souls with just one more trip to the mall."
There's a (small) kernel of truth to this. Many capitalists do indeed want us to buy consumer goods, without much regard to the consequences to each consumer personally. In hopes of getting us to spend, they employ advertising. And advertising often promotes feelings of inadequacy to get us to consume more.
This particular kind of advertising was developed at least as early as the nineteenth century. It was then perfected in the 1920s.
Typical examples of the formula include:
Why be ugly ... when you can use Zenith Cold Cream?Why be fat ... when you can take Acme Diet Pills? This formula was so widespread by the 1920s and 1930s, in fact, that Sigmund Freud joked the "boldest and most successful piece of American publicity" would be an ad using the phrase "Why live if you can be buried for ten dollars?"Ann Douglas, Terrible Honesty:Mongrel Manhattan in the 1920s (New York: The Noonday Press, 1995), p. 144.
Nowadays, a lot of modern advertising is more nuanced and less in-your-face than this formula. Modern advertising often appeals to humor. Nevertheless, advertisers nowadays still rely on the strategy of presenting consumption as a sort of self-improvement. They offer a glimpse of a life of better looking people, more luxurious cars, and more fulfilling friendships. It's the life you might have if you only consume the right products and services.
But do people actually believe what advertisers tell them?
Clearly, people don't buy everything advertisers tell them to. If they did, as Ludwig von Mises noted, candle makers could convince us to abandon light bulbs with a few ad campaigns.
Indeed, studies conducted to determine the effectiveness of ads have never been conclusive. A 1931 consumer survey revealed the "only 5 percent of the public believed any of the more obviously outrageous claims made by ads." Only 37 percent believed any ads at all.Ibid., p. 68.
A 2013 survey concluded only 21 percent of consumers agreed "ads are somewhat accurate." 21 percent also said they will even "refuse to purchase products due to brand advertising."
Some might claim this is only survey data, and thus questionable. But then there are countless cases in which ad campaigns failed to achieve results. A 2015 study from the University of Texas, for example, showed alcohol ads have increased 400 percent over the past forty years. Meanwhile, per capita alcohol consumption has gone down. Yes, advertising can be helpful in promoting a certain brand. But it hasn't been shown to increase a person's overall spending.
So, it seems people don't spend more just because capitalists tell them to. And its unclear that many even believe what ads have to say. If this is the case, it's hard to see how "capitalism" has succeeded in its nefarious plan to make us miserable consumers, assuaging our loneliness with another round of mindless spending.
Are We More Miserable than Our Forebears? In spite of the unconvincing reasoning behind the capitalism-makes-you-sad narrative, many continue to find it plausible. This is largely because many people remain convinced that people were happier — or at least had an easier time — in the past.
Certainly, there's no statistical data to support this. Those happiness measurements we sometimes read about in the popular media (such as this one) are usually based on totally subjective self-reported survey data and offer absolutely no means of comparing the present with the past. Attempts to systematically asses "happiness" in the past were virtually nonexistent.
Quality-of-life indicators reconstructed from the past (such as working hours, living space, life expectancy, and homicide rates) don't often make the era of our grandparents or great-grandparents look especially wonderful. The nineteenth century — an era before modern methods of mass marketing and mass consumption — wasn't an era of carefree indifference to the requirements of daily work and toil. The poverty of the "good old days" was not exactly a source of personal fulfillment and contentment.
[RELATED: "Capitalism Didn't Invent "Keeping Up with the Joneses" by Ryan McMaken]
But perhaps we need to look deeper into the past?
On this, Murray Rothbard suggests the imagined Golden Age before capitalism existed. It was, according to the myth, an era of "Happy Craftsmen and Happy Peasants" who had a "sense of belonging" and all were "sure of his station in life." No one suspected he ought to be buying a new car or a new bedroom set. No such options were available at all.
Was living in poverty with no access to advertisements or capitalism the real key to happiness? Rothbard is skeptical and notes that people — should they really want to flee capitalism — are largely free to pursue this supposedly happier type of living in communes like the utopians or hippies of old. He concludes:
Not only has almost no one abandoned modern society to return to a happy, integrated life of fixed poverty, but those few intellectuals who did form communal Utopias of one sort or another during the nineteenth century abandoned these attempts very quickly. And perhaps the most conspicuous non withdrawers from society are those very critics who use our modern “alienated” mass communications to denounce modern society.
It's comforting to think there is some time or place in which human beings were not troubled by feelings of unhappiness, emptiness, or inadequacy. It's unclear, however, where or when this place has existed. In the mean time, few seem willing to give up their modern amenities to investigate first-hand.
Many American families are having trouble making ends meet. It’s no surprise given the value of the dollar has fallen 95% since the Federal Reserve was created. Not everyone is harmed by inflation, but those who, according to inflationdata.com are,
the other big losers those on fixed incomes like the elderly and anyone whose income isn’t indexed to inflation.
Inflation affects them especially hard because the prices of things they buy go up while their income stays the same. In addition, the poor are generally renters so they don’t even benefit from a “cheaper” mortgage while they are paying higher prices for their groceries.
Also even though their wages may be indexed to inflation there is a time lag since it is usually only re-indexed once a year. During this time they are on the old wages while prices for things they buy have already gone up.
However, in her book Squeezed: Why Our Families Can’t Afford America, Alissa Quart doesn’t mention the Fed or money creation. Instead, most of us are “marinating in an atmosphere of ‘cruel optimism’...an atmosphere that ‘exists when something you desire is actually an obstacle to your flourishing.’”
Quart claims members of the middle class are happy idiots, encouraged to do what they love, while being pummeled by capitalism, no union protections, and a frayed social safety net. The hyper-educated poor are hidden she writes. “The number of people with graduate degrees receiving food assistance or other forms of federal aid nearly tripled between 2007 and 2010 and those with a Ph.D. who received assistance rose from 9,776 to 33,655.”
Quart spends considerable time complaining about the pittance adjunct college professors are paid. Having done adjunct duty myself, I know how little it pays. I also know I was happy to get the work and loved every minute of it.
Universities can’t pay for all of those useless administrators if adjuncts aren’t willing to teach for a couple grand a class. As of 2011, the author writes that only one professor in six is tenured. Back in 1975, about half were full-time.
Quart frets that Union membership is down to 11 percent from 30 percent in the 1960s and in the private sector only 7 percent are union members. She also points out, “the number of part-timers working just below thirty hours a week rose from 2013 to 2015..” but neglects to point out the reason, the Affordable Care Act.
Capitalism has responded to consumer needs with the increase in 24-hour daycare centers. Instead of celebrating this, Ms. Quart writes in all caps “TWENTY-FOUR-HOUR DAYCARE CAN SEEM SHOCKING TO PEOPLE…” It is in this section of the book that Quart writes this whopper, “degradation of care is caused by ‘hypercapitalism,’ our crazed unfettered free market.”
“Hypercapitalism,” “unfettered free market”? In the “2018 Index of Economic Freedom,” the United States is ranked 18th.
The author has a knack for statements that jump off the page and make anyone’s blood boil who even marginally believes in freedom. In a section about multiple couples sharing parenting duties, she writes, “Why haven’t state-based or federal policy fixes been implemented that would free us from our exhausting and often unsustainable independence?”
She constantly derides individual inginuity believing the nanny state should solve everyone’s problems. The way Quart puts it is, “we substitute market transactions for what should be human interactions.”
While minimum wage laws and work regulations push employers toward automation and robotics, Quart writes, “why shouldn’t we be Luddites?” and “shouldn’t we be concocting legislation to help all strata of workers who will be displaced by our mechanical friends?” There are 140 hospitals now employing 500 robots. “The medication delivery robots are programmed to require only a biometric access and pin code from a human to finalize the meds’ deliveries.” Remembering my extended time in the hospital a robot would have been an improvement over some of the surly RNs I encountered.
The author is even worried about attorneys. Some lawyers shouldering $200,000 in student loan debt have been relegated to being “Doc monkeys” who earn only $17 to $20 an hour.
Second jobs driving for Uber and the like are required for teachers and others to afford housing in expensive cities like San Francisco. Quart makes no mention of the real reason for home price and rent increases; the aforementioned Fed money creation, as well as local government restrictions on the creation of new housing supply. Instead she claims, “Rent stabilization and control go along with better-regulated real estate development overall, especially in desirable cities.”
Time Magazine calls “Squeezed” one of this summer’s best new books. If you want to know how socialists think, what they don’t understand and who they blame, Quant’s work is an eye opener.
A better book to read is Murray Rothbard’s “The Case Against the Fed.” He explains,
Monetary inflation, then, acts as a hidden "tax" by which the early receivers expropriate (i.e., gain at the expense of) the late receivers. And of course since the very earliest receiver of the new money is the counterfeiter, the counterfeiter's gain is the greatest. This tax is particularly insidious because it is hidden, because few people understand the processes of money and banking, and because it is all too easy to blame the rising prices, or "price inflation/' caused by the monetary inflation on greedy capitalists, speculators, wild-spending consumers, or whatever social group is the easiest to denigrate. Obviously, too, it is to the interest of the counterfeiters to distract attention from their own crucial role by denouncing any and all other groups and institutions as responsible for the price inflation.
It is the Fed’s counterfeiting that has American families squeezed not hypercapitalism.
The US Census Bureau released new poverty data this month, and California once again has the nation's highest poverty rate, according to the "Supplemental Poverty Measure."
According to the SPM, California's poverty rate in 2018 was 18.1 percent, followed by Louisiana with 16.5 percent, and Florida, with 16.2 percent.
The states with the lowest poverty rates per the period were Iowa at 6.7 percent, Minnesota at 7 percent, and Kansas at 7.8 percent.
The 2018 report shows a slight general decline in poverty rates throughout the nation in recent years. According to the 2015 report, for example, California's poverty rate was over twenty percent, and the state with the lowest poverty rate — Minnesota — was at eight percent.
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The SPM measure contrasts with the old "official" poverty measure developed in the 1960s. The old measure tends to apply a blanket standard for poverty nationwide, but the SPM takes into account local housing costs and also " extends the official poverty measure by taking account of many of the government programs designed to assist low-income families and individuals."
Using the old measure, California ranks considerably better, because, of course, nominal incomes in California are considerably higher than in rural states and many other regions with much lower costs of living. Poverty rates in places like Mississippi, Louisiana, and New Mexico tend to be driven by low worker productivity, low-education levels, local corruption, and unfriendly business environments. But, the cost of living in these areas also tends to be relatively low, mitigating the effects of lower incomes.
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The situation is different in California where relatively high wages are often negated by very high living costs. And not surprisingly, California often dominates lists of the least-affordable housing markets in the United States.
Homelessness
The homelessness data coming out of California is also among the worst.
When it comes to homeless persons as a percentage of the overall population, California is the fourth-worst in the nation, behind only New York, Hawaii, and Oregon. 0.33% of California's population (or 33 people per 10,000) is estimated to be homeless on any given night, according to the Point-In-Time survey of homelessness.
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And while California is not the worst in terms of the proportion of the population that is homeless, the state is among the worst in delivering state services designed to lessen homelessness overall. Among the top-ten states with the highest percentage of homeless, California has the highest number of unsheltered homeless.For this number, and for total of chronic homeless, I use the totals from "Overall Homeless, 2018" "Unsheltered Homeless, 2018" and "Chronically Homeless, 2018." from "2007 - 2018 HIC Data by CoC (XLSX)" See: https://www.hudexchange.info/resource/3031/pit-and-hic-data-since-2007/. Nearly 69 percent of the homeless population in California is estimated to be on the street. Massachusetts, by contrast, provides shelter to over 95 percent of its homeless population. Unsheltered homeless are also far less likely to receive treatment for mental illness or urgent health issues.
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Some may note, of course, that Calfornia's warm weather, makes it easier for the homeless to be unsheltered. This is no doubt a factor, but if we look at Florida's homeless population, we find that 43 percent of the homeless population in that state is unsheltered — a difference of 25 percentage points. It appears unlikely that a warm climate is the only factor.
The importance of housing costs to the issue of homelessness is made more clear when we note that chronic homelessness is only a fraction of the total homeless population. It is sometimes suggested that the cost of housing is a not a significant factor in homelessness because most homeless persons — it is claimed — are mentally ill persons incapable of paying even a small rental fee.
The truth, however, is that in most cases, well over two-thirds of the homeless population is temporarily homeless. Many of these are families, many of whom have been evicted from housing due to missed rent payments, lost jobs, and other temporary situations. These events are made far worse and longer lasting by high rents and high housing prices. In California, for instance, only 26 percent of the homeless are chronically homeless. Most homeless people are people engaged in a search for permanent housing.
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Thanks to numerous land use, environmental, zoning, and building code restrictions imposed on builders in California, however, the cost of living remains extremely high in the state. The tax burden is among the highest in the nation, putting many middle-class earners far closer to the poverty line in case of temporary job loss. Even non-housing costs are well above most other states.
California may be the land of Silicon Valley billionaires, but thanks to the state's regulatory environment, the prosperity is rarely felt by people of more ordinary means. Wealthy residents don't want their views obstructed, and they don't want to have to look at low-cost housing on their drives to work. So, they work to ensure that government regulations minimize new housing construction, thus further driving up housing prices and rents. New housing construction isn't keeping up with population growth.
High taxes are a burden on the middle and lower-middle classes. Regulations make it harder to start and sustain a business.
Nor surprisingly, the result is a state with the highest poverty rate in the nation and the nation's fourth-largest homeless population per capita.
Why the Cost of Living Matters Although the SPM measure of poverty clearly provides a broader measure of poverty incorporating both social programs and housing prices into calculations, many leftwing columnists insist on using the older poverty rate measure — while ignoring the homelessness data — because the older measure makes states like California look better.
For example, wealthy investor Ken Fisher, writing in USA Today, claimed last year that the "poorest states have Republican legislatures, and richest have Democratic ones." He writes: "Eighteen of the 19 poorest states have legislatures where both chambers are Republican controlled. New Mexico (46th richest, fifth poorest) is Democratic. But there isn’t another blue or purple state until you get to purple Maine... But all five richest states have both legislative chambers controlled by Democrats – Maryland, New Jersey, Hawaii, Massachusetts and Connecticut. Overall, Democrats dominate the 20 richest states."
Fisher was using rankings published earlier by USA Today, which relied heavily on the old poverty rate measure, and which used nominal median incomes not adjusted to local cost of living factors. If we do make that adjustment, things look very different.
Fisher's analysis thus relies almost totally on nominal income numbers, and ignores how expensive it is to live in places like New York and California.
For most regular people, however, leaving California may be the best thing one can do to increase one's real income and have a chance at a life that doesn't involve working long hours to afford a fixer-upper that costs half-a-million dollars.
There is, after all, a reason California is exporting its poor to places like Texas.
Listen to the Audio Mises Wire version of this article.
I recently attended the Soho Forum debate between (democratic socialist) Ben Burgis and (libertarian) Gene Epstein on the question of whether capitalism or socialism would lead to the most prosperity, equality, and liberty.
Ben took it for granted that a socialist economy would be more equal, and Gene did not fight hard on this point; indeed, libertarians were once fond of saying, “While capitalism may yield the unequal distribution of wealth, socialism yields only the equal distribution of poverty.”
Well, let’s look at the facts.
We are told that capitalism creates large disparities in income and wealth, and inequality might seem like a real issue if we only train our attention on dollar values.
More Equal Than Ever In the material sense, however, we are the most equal society that has ever been.
A billionaire has a Maserati or Rolls Royce, but he can’t drive the streets much faster than you or I can. Yet there was a time when the rich were carted around in horse-drawn carriages while most people walked. The former is a form of equality.
Pineapples and other tropical fruits were once were rare and highly valued exotic items. In fact, Charles II of England is seen being presented a pineapple (surely worth thousands of pounds) in a seventeenth-century painting. Nowadays, the rich frequent swanky restaurants, but most people in Western countries have access to more calories of quality food then they could ever eat.
That’s not all. The richest person in the world can’t get that much better of a broadband connection than you can, or a much comfier pair of shoes, bed, or couch.
In terms of the operations of day-to-day life we are becoming more equal. Increasingly everyone—even those in third world countries—have access to a smart phone which can reach the internet and all the education, art, music, culture, and social media that everyone else has access to.
A rich person has a flush toilet. You have a flush toilet. A rich person has water coming out of his taps. You have water that comes out of your taps. A rich person has electricity. You have electricity. You can afford soap. You can eat fruit that is flown in from all over the world, in every season. The richest lord in the world a couple hundred years ago couldn’t even dream of the luxury that people who are considered impoverished in first world countries live in.
Competing for Resources under a Socialist Regime Burgis admits to wanting to place institutions like banking and finance, utilities, healthcare, and lord knows how many others under so-called democratic control, in the name of egalitarianism, but we have to wonder how the masses are going to vote on how the public gets access to telecommunications while still serving the user. Ultimately, private business owners are answerable to the consumer. It might look like they get to boss everyone around and make decisions, but if someone does it better, they are out of luck. They will be replaced by a competitor.
Removing the market does not solve the problem of “competition” (if this is indeed a competition). There will still be plenty of competition for government contracts and favored positions even once institutions are under democratic control. Ultimately, someone is going to have to make decisions when it comes to who gets what, and they will wield a disproportionate—dare I say “unequal”—amount of power, and likely will “get” rather a lot more than most people.
Ultimately, it is true that the more dollars you have on a free market, the more votes on what is produced and by whom you get. But, as I’ve explained, the “excessive wealth” of the rich is not stored under a mattress. The only way they can keep it is if they invest it in things that serve the public by creating better products and services. If they invest in lines of production no one wants, they will lose the investment. In this way, the market—to the extent that it is indeed a free market with only mutually agreed upon exchanges—forces an alignment of the interests of those who possess the wealth with those of the consumers. The consumers decide what the rich have to invest in to stay rich with their “votes.” Gene mentioned over and over in the debate that those who make up the ranks of the “working class” control a disproportionate amount of consumer spending and therefore have a more equal say in how our society functions than most people would think.
The Issue of Healthcare We can pit the market against socialism in the most seemingly inegalitarian case, which is the economics of life and death, namely, healthcare. In a debate with me, Burgis expressed horror that on a free market a rich person could buy their way to the front of a queue for life-saving treatments and said it would be better if the state rationed these things. This seems to make sense if we take a steady-state view of the economy, but economies are not fixed.With the exception in Mises’s conception of the “evenly rotation economy,” which he uses as a thought experiment to demonstrate how real-world markets actually function. Supposing there was only one surgeon who could perform the operation, allowing the highest bidder to get first access to the surgeon would bring so much money in that it would be possible to calculate how much time the surgeon should be performing operations for the very wealthy and how much time he should spend teaching others to perform the same procedures. It would send out a signal to all other surgeons that this is a desperately needed specialization and that they should stop what they are doing immediately to train up in the new style of operation. In the long term far more people would have access to the procedure at an affordable price than if the state merely rationed out access to places. In the latter case, waiting lists would be huge and people would die for want of qualified surgeons. A strange form of equalization tends to occur over time whenever the market is allowed to function. Is access to healthcare in the USA unequal at the moment? You bet! But that is only because the market is not allowed to function.
The market creates an upward pressure on the quality of products and a downward pressure on their prices, because consumers want the best product at the best price. This means “production for us” is “production for profit.” What is only accessible to the rich today becomes more equally accessible to everyone tomorrow.
That is why at first hardly anyone could afford a computer. But because the “greedy rich” opted for exuberance rather than charity, buying expensive computers rather than giving away their money to the poor, the companies that made those computers could afford to fund the research that led to the relative “supercomputer” that you are reading this article on today, affordable to you.
It has long since become a doctrine of the modern American welfare state that the federal government must be the primary administrator of the nation's so-called safety net. Any attempt to devolve the welfare state to the states is routinely treated as backward and reactionary.
This doctrine remains in place though many US states are far larger and wealthier than many European countries that have welfare states of their own. Naturally, each of these states have economies large enough to manage state-based welfare programs. But, the federal government extracts so many billions of dollars from each state — primarily for the federal welfare state and the military — that states are left without the resources they would need to do their own.
How US States Compare to their European CounterpartsNow, for the sake of argument, let's just assume that every country needs a welfare state, and that it's a good thing.
But even if that's the case, why does Texas need the federal government to have a welfare program? Texas is the size of Australia in both population size and in the overall size of its economy. Australia has a large welfare state of its own (albeit slightly smaller than the US welfare state), so why can't Texas manage its own welfare state with its own resources?
This holds true even for small US states such as Colorado, which has a population similar to that of Norway, and a per capita GDP similar to that of Austria. So, again, this would suggest that Colorado has no need of the US federal government to create and administer its own welfare state.
The same can be said of all other US states.
If we look at a comparison of US states to European countries in terms of per capita GDP, we find that even the poor US states are comparable to member states of the European Union. Mississippi is similar to Portugal, and New Mexico is similar to Spain.
Nevertheless, Americans are regularly told that the welfare states in these foreign countries are well-funded, well-run, generous, and superior to the American welfare state. If the Spaniards, with a per capita GDP similar to New Mexico can allegedly run their own welfare state so well, why can't the New Mexicans be allowed to do the same?
They aren't allowed to do this, of course, because the gatekeepers of leftwing and DC-based opinion would have us believe that New Mexicans, Texans, and Mississippians are too stupid and ideologically incorrect to run a welfare state properly. "Best to keep the power and control in Washington, DC," they might say "so we can make sure the rubes out in flyover country don't screw things up."
One argument the feds will use in this regard is that poor states need to be subsidized by the richer states. Nevertheless, the relative income levels and wealth levels of the states in the US have been converging over time. While it is certainly true that some states are wealthier than others, trends in capital investment are bringing the states closer together.See this article from the Washington Post:
These facts won't be enough to convince Washington to lessen its death grip on the welfare state, though. But, those of us who don't consider people outside of New York and Washington, DC to be members of a lesser species, it strikes one as prudent to leave government social programs to the people who actually live in the communities that are affected by them — and to keep the money closer to the taxpayers who actually pay the bills. Moreover, by breaking up the welfare state into 50 smaller units, the programs will be more responsive to the taxpayers who don't have time to go to Washington and attempt to compete with the huge national special interests that keep the national welfare state fat and happy. It's a lot easier and cheaper to meet with your state representative than your US senator.
After all, rather than send billions of tax dollars to Washington, then wait for some DC bureaucrats to spend that money in one's home state — after taking a generous cut for themselves, of course — why not just keep that money where it came from?
Besides, the amount of money that flows from taxpayers to the federal government is far, far larger than the amount of money that goes from taxpayers to the states themselves. This graph shows just how much more money goes straight to the feds rather than to state governments.IRS collections are found here. State revenues are based on the Census Bureau's survey of state level revenues. This does not include local taxes.
Note that in the case of Texas, Texans pay five times as much in taxes to the federal government than to the state government. In Illinois, residents pay four times as much to the feds as to the state. Even in tax-heavy California, Californians pay more than two-and-a-half times more in taxes to the federal government than to the California government.
A Thought Experiment: A State-based Welfare StateBut what if all the states's federal tax revenues — we're completely ignoring state tax revenues — were allowed to stay in the states and were distributed to everyone on public assistance without going through DC first?
Yes, I know some readers will say "let the taxpayers keep it!" Right, I get it. And I agree. But for the sake of argument, let's just assume that money remains in the government's hands. Except we'll cut the feds out of the equation (somewhat).
But how much money are we talking about? And how much money would each state "need" to make payouts to low-income populations?
First, let's look at how much the feds collect from the states overall.See the IRS website for totals. As one might expect, the IRS's tax collections in each state vary wildly from place to place. The smallest amount is $4.4 billion in Vermont and the largest is $405 billion in California. In medium-sized Colorado, the total is $47 billion.
Again, all of this ignores the money the states take in themselves through state taxes.
So, we know how much money the residents of each state ship off to the IRS.
We'll also leave the issue of the federal government's massively bloated military funding issue to other articles. (See here and here.) But in this case, we'll take 25 percent of each state's IRS collections as funds for military, foreign affairs, and interest on the debt. Out of the $3.3 trillion total collected from state residents, that leaves $825 billion for spending on military, veterans, the State Department, and foreign affairs.The federal government has revenue sources outside the residents of the states. There are customs revenues and remittances from other countries, and revenues from leases on federal lands, etc. So, federal revenues are actually larger than what is discussed here. It's more than enough for a government that has a navy ten times the size of the world's next-largest navy, and the feds will just have to figure out how to use some of that money to keep paying the interest on the national debt.
So, in our model, the feds are awash in money with their $825 billion, and that leaves 75 percent of state IRS collections to the states themselves, or $2.4 trillion total.
All that remains is for each state to dole out what they have to their low-income populations — or they can use it for anything else the voters will let the state legislature get away with.
Next, we need to figure out how many low-income people are in each state.
To do this, we'll use the total numbers of people in poverty published by the Kaiser Family Foundation. That can be found here. But we can't stop there. In our model, we're giving public assistance only to people who fall below the federal poverty line. That excludes all the non-poor who receive fat Social Security checks every month. In our hypothetical world, the taxpayers won't be subsidizing the Baby Boomers' second homes and annual vacations anymore.
But, without social security anymore, some elderly will fall below the federal poverty line. To include those, we'll add in these numbers put out by the leftwing Center on Budget and Policy Priorities.
After we've added all that up, we have an estimate of how many people in poverty are in each state. The way the feds measure it, it's not a small number.
Now, we divide up all those IRS tax collections (minus the 25 percent that goes to the military and interest) by the total number of people in poverty — and write a check to every person in poverty. Here's the size of the check in each state:
In some states with high federal tax revenues, low poverty rates, and low numbers of elderly, these numbers are huge. The federal progressive income tax means that states with even a small number of very rich people have much more money to play with. Few billionaires live in West Virginia, for instance. Using this model, Ohio can hand over a $48,000 check per year to each person in poverty. But even in lower-income states with fewer federal tax revenues and more poverty, states can hand over some pretty big checks. In our model, every single person in poverty gets free money. That's certainly not the way it's done now.
Moreover, keep in mind this is a per person number. This isn't a household number. There are 2.64 people in the average Mississippi household, where each person in poverty would get a check for $11,800. That means an average household of people in poverty would get checks totaling more than $31,000 or nearly 80 percent of the state's median income. Mississippi, by the way, is a state where the median monthly housing cost is a mere $687.According to the Census Bureau.
Even in the poor states, we're talking about fairly large amounts that can be distributed to low-income households. And, of course, people in states with low levels of welfare benefits can freely emigrate to states with more generous benefits.
Some readers at this point will complain that we're ignoring that 14 percent of the budget that goes to all those "miscellaneous" purposes like arts funding, and research. There's nothing to stop the states from spending their share of the loot on these purposes. After all, not even Massachusetts is going to hand out $72,000 checks to every person in poverty. According to this model, the state could do that. But, it could also have plenty of money to spread around to make sure that starving avant-garde artists get their precious tax-funded arts grants.
ConclusionsNow, I'm not saying that this is how states should do things were they allowed to keep most of the massive amounts of tax revenue their citizens generate for the federal government. I'm simply pointing out that even the poor states pay vast sums to Washington when that money could simply be distributed in the state from where the money came. Moreover, when we start to look at the sums of tax money produced in each state, we see there is simply no need for the federal government's vast welfare machine. The states and their taxpayers have all the resources necessary for each state to have its own locally-controlled welfare state.
The question we're then left asking ourselves is this: why is the federal government "necessary" to spread around the welfare checks?
Many of our readers already know the answer, of course. While most state governments must, by law, have balanced budgets, the federal government can always just resort to massive amounts of deficit spending. The federal government, unlike the states, can also simply print more money to help cover its massive budget shortfalls. As it does.
This means that federal welfare programs can continually expand regardless of the state of the budget or the economy.
And, of course, just as a matter of politics, the federal government, having seized the reins of the welfare state decades ago, will never give up this power because the political benefits of having control over the welfare state allow the federal government to collect enormous sums that it can dole out to its friends, especially in the military. Indeed, we see today how the Trump administration is planning to cut down on welfare spending in order to beef up military spending.
Between the welfare state and the military, the US government enjoys the best of both worlds as both conservatives and leftists fall over each other demanding more government spending for their own pet projects.
In truth, the welfare state could be decentralized back to the states and we'd still be looking at massive amounts of money that could be spread around low income populations.The military should be decentralized too, of course. As discussed here. It would also keep a lot of money out of the hands of the Pentagon. Don't expect Congress and its cronies to look kindly on the idea, however.
Are you concerned about the poor’s economic welfare? If so, you should celebrate President Trump’s announcement that the United States will withdraw itself from the Paris Agreement.
The Paris climate accord, which was ratified last year, attempts to “brings all nations into a common cause to undertake ambitious efforts to combat climate change and adapt to its effects.” Supporters of the agreement claim it is necessary to avert the disastrous consequences of climate change.
Regrettably, the plan’s supporters are committing the greatest economic fallacy, which Henry Hazlitt, the acclaimed economics writer, warned about in his most prominent work, Economics in One Lesson (1946):
The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of the proposed course; the good economist looks also at the longer and indirect consequences.
While laypeople, pundits, scientists, and economists have focused their attention on what Trump’s decision might mean for climate change, these groups have largely ignored the effect of the agreement on poorer American households. Here are three reasons why withdrawing from the Paris Agreement is good for the poor:
The Paris Agreement raises energy costs for hardworking American households.Under the agreement, the United States pledged to reduce its greenhouse gas emissions by 26-28% below its 2005 level by 2025. This would be accomplished by transitioning from fossil fuels to renewable sources of energy.
Although renewable energy will likely become the technology of the future, prematurely transitioning to “greener” sources creates a problem for Americans struggling to make ends meet.
Right now, these alternative sources of energy are far more expensive (and less reliable) than traditional sources. A study published last year found that “electricity from new wind and solar power is 2.5 to 5 times more expensive than electricity from existing coal and nuclear power.”
RELATED: "The High Cost of Centrally Planning the Global Climate" by Ryan McMaken
Until the cost of green energy declines through technological advances and increases in productivity, transitioning to renewable energy too hastily will necessarily cause energy prices to skyrocket. Rising energy prices disproportionately affect those who already have the hardest time affording energy.
Every additional dollar that lower-income families spend on lighting and heating their homes is a dollar that is now no longer available to pay for housing, food, clothes, and books. By raising energy prices, the Paris Agreement would make it harder for these families to afford the things they need.
Regulations promulgated under the aegis of the Paris Agreement increase prices and harm the economy.The Paris Agreement saddles producers with burdensome regulations that increase the cost of doing business. Ultimately, these costs are either passed to consumers or are absorbed by businesses, resulting in lower employment and less investment for the capital goods necessary to produce the goods consumers need.
Furthermore, developed economies like the United States rely on affordable, accessible, and reliable energy. Machines on the assembly line and the trucks transporting goods alike require energy to produce and deliver products to consumers.
Most affected by onerous environmental regulations are energy, manufacturing, and shipping firms. Imagine the mom and pop machining shop that would have to pay tens of thousands of dollars to comply with increased regulations originating from the Paris accord. That’s tens of thousands of dollars that now cannot be used to raise wages for their workers, hire new employees, purchase more inventory, or invest in capital (think: technology and machines) to produce tomorrow’s goods.
In the long run, total production will decrease, employees will make less money in wages and benefits, and consumers will face higher prices at the market. There will be less wealth, less prosperity, and fewer opportunities, especially for those struggling to find jobs or climb the economic ladder.
The Paris Agreement redistributes wealth from American taxpayers to international corporations and less developed nations. The Paris Agreement also initiates a massive redistribution of wealth from developed countries to less developed countries. This will be orchestrated through the United Nations Green Climate Fund, which seeks to help developing countries purchase and construct alternative energy infrastructure.
The Green Climate Fund is the worst form of crony capitalism, guaranteed to benefit politically connected firms, especially those that stand to make millions of dollars in selling green energy technology. Like all government infrastructure programs, it will likely be highly inefficient and rife with corruption.
To make matters worse, the Paris Agreement assures that a significant portion of the multi-billion dollar budget for the Green Climate Fund will be financed by American taxpayers. Astoundingly, the agreement places American taxpayers on the hook for bankrolling pricey green energy technologies for other nations.
Where do supporters of the agreement think this money will come from? Have they forgotten that the United States is already $20 trillion in debt with unfunded liabilities (promises of future services) totaling over $200 trillion?
Remember that every dollar taxed by government is a dollar that American families and businesses cannot use to purchase the things they need. Taxes divert money and resources from the private sector, where it is spent more efficiently and according to the needs of consumers, to the public sector, where it is spent inefficiently on programs (like green energy) deemed “worthy” by central planners (in this case, the international community) without concern for the needs of the people in these different countries.
The eventual result of increasing taxes will be less capital available to meet the future needs of producers and consumers. There will be fewer total goods produced and fewer jobs. Prices will rise, and families and small businesses will find it harder to get the credit they need for mortgages and small business loans.
Decades ago, Henry Hazlitt alerted his contemporaries about the error of ignoring unintended consequences when analyzing policies. His warning still rings true today:
The long-run consequences of some economic policies may become evident in a few months. Others may not become evident for several years. Still others may not become evident for decades. But in every case those long-run consequences are contained in the policy as surely as the hen was in the egg, the flower in the seed.
Regardless of the truthfulness of claims made by climate alarmists, it is important to look beyond good intentions to see how policies, like those springing from the Paris Agreement, would affect the most vulnerable people in society in unintended ways. It is tragic that government policies designed to alleviate one problem create further problems that end up harming people.
It is indisputable that the Paris Agreement would have negatively affected lower-income American families. Fortunately for them, the United States is no longer beholden to the agreement, and it can now pursue environmental policies it considers to be in the best interests of Americans.
Chinese billionaire and Alibaba founder Jack Ma predicted this week that in 30 years, people will be working less than they do now. According to NBC:
I think in the next 30 years, people only work four hours a day and maybe four days a week," Ma said. "My grandfather worked 16 hours a day in the farmland and [thought he was] very busy. We work eight hours, five days a week and think we are very busy.
Only time will tell if Ma's prediction will come true in terms of its time horizon and magnitude. But, if the next century follows the pattern of the previous 150 years, we could be looking at continued and significant reductions in total working hours.
Some of the biggest gains are likely to occur in the so-called "developing" world, but even the wealthy West will continue seeing gains in this regard.
For many Americans, at least, comments such as Ma's may cause them to scoff. Remarkably, there still seems to be an impression among many Americans that they are working more hours now than their grandparents did.
This is no doubt true in some specific cases, but overall, the evidence is clear that people are working less now than in the past — with the possible exception of the recent past.
RELATED: "Why Median Incomes Probably Are Really Going Down" by Ryan McMaken
Indeed, if we look at a survey of total work hours conducted by Michael Huberman and Chris Minns, we find that total hours worked have declined over time: In Germany, for example, total hours worked declined from 3,284 hours in 1870 to 1,463 in 2000. In Canada, work hours declined over the same period from 2,845 to 1,835.
The overall trend is obvious, and only the US, Sweden, and Canada in this sampling of wealthy countries shows something other than a decline from 1980 to 2000.
From 1870 to 2000, though, total work hours declined 39 percent in the United States, 40 percent in the UK, and 55 percent in Germany. While it's certainly possible that some Americans may be working as much as their great-grandparents did, overall, most of us work more than a third less time than they did.
Other studies have shown similar results.
A study by Thomas Juster and Frank Stafford found that from 1965 to 1981 in the United States, “market work” hours per week fell from 51.6 hours to 44 hours for men. For women, market work rose from 18.9 hours to 23.9 hours. We would expect an increase for women over this period as women began to take on “market work” at higher rates than before.
In yet another study by Mary Coleman and John Pencavel, average weekly hours worked fell for white men from 44.1 hours in 1940 to 42.9 hours in 1988. It fell for white women from 40.6 hours to 35.5 hours over the same period.
Most of this is thanks to continued progress in worker productivity. As recently explained by Ferghane Azihari at mises.org, we work less for more as capital accumulates and productivity increases. Obviously, our standard of living is higher than that of our grandparents. And yet, we're often working less than they did.
Moreover, our working lives are shorter than they were in the past.
As Ben Powell has noted in his work on sweatshops on child labor, wealthy countries enjoy the luxury of eschewing child labor nearly in its entirety.
By the 20th century, thanks to increasing productivity, the adult members of the family could produce enough to pay a family's expenses in a way that had previously required the labors of the family's 9- and 10-year-olds.
It was the decline in the necessity of child labor that made it feasible to finally outlaw child labor in wealthy countries in the early 20th century. Today, labor activists act as if laws prohibiting child labor were the primary driver behind its decline. It is far more likely that the opposite is true. Namely, that growing wealth allowed for more children to leave the work force. Prohibitions on child labor came only in the late stages of this process. Powell writes:
In the United States, Massachusetts passed the first restriction on child labor in 1842. However, that law and other states’ laws affected child labor nationally very little. By one estimate, more than 25 percent of males between the ages of 10 and 15 participated in the labor force in 1900. Another study of both boys and girls in that age group estimated that more than 18 percent of them were employed in 1900. Economist Carolyn Moehling also found little evidence that minimum-age laws for manufacturing implemented between 1880 and 1910 contributed to the decline in child labor. Similarly, economists Claudia Goldin and Larry Katz examined the period between 1910 and 1939 and found that child labor laws and compulsory school-attendance laws could explain at most 5 percent of the increase in high school enrollment. The United States did not enact a national law limiting child labor until the Fair Labor Standards Act was passed in 1938.
And it wasn't just the children who could afford the new luxury of skipping work.
During this same period, the elderly were beginning to enjoy for the first time the concept of "retirement."
Just as increased productivity had made it possible too for parents to more fully support children with just the parents' wages, so too did these gains make new pension programs — both governmental and private — possible.
After all, the implementation of the Social Security tax would have been a political impossibility in an earlier era when workers were living closer to subsistence levels.Thanks to the surpluses made possible by growing industrialization and worker productivity, both private corporations and government agencies could skim off enough of the surplus to hand over to elderly workers who were no longer actively producing products or services as wage workers.
Thus, like child workers, elderly workers began to disappear from the work force. W. Andrew Achenbaum writes:
In [1890 in the US], about two-thirds of men aged 65 and older were still in the labor force — roughly the same proportion found today in developing countries such as Brazil and Mexico. By 1920, that number had dropped to 56 percent, and by 1940 it was down to 42 percent. Today it is 27 percent.
Today, not only are modern workers working fewer hours in many cases, but fewer workers are necessary to produce at least as much wealth.
This is especially true when we look at these trends through a global lens. As Powell notes, child labor declines the most in those countries where real incomes exceed $12,000. The number of countries where this is actually the case continues to expand, just as poverty continues to decline in the developing world.
This isn't to say that everything is perfect or getting better in every way all the time. Nor are the gains evenly distributed. The relative gains being made in recent decades in the US, for example, have slowed as American workers face greater competition from foreign workers. Gone are the days when the European competition was still digging out from the rubble of World War II. Also gone are the days when workers in places like India and Latin America and China offered little competition. Workers in the Western world once had a near monopoly on the benefits of being in close proximity to the world's best capital — including the best factories and the best technology. Nowadays, highly advanced production facilities can be found throughout the world. And this means more competition from workers in the developed world.
Moreover, continued interventionism by states and their central banks may drive real wages and economic opportunities down. Regulations on starting small business, coupled with central-bank driven asset price inflation, takes its toll on earnings for many throughout the world.
Time will tell if war, unchecked government regulation, or some other disaster may put a halt to the declines in working hours we've been enjoying for so long. If not, our descendants will be looking back on five-day weeks the way we should now look at the grueling work schedules of our great-grandparents.
Progressive politicians repeatedly tell us that capitalism is a system rooted in the wealthy’s exploitation of the poor. To convey this in an emotionally resonant way, they employ images of "sweatshops" in the developing world. While some people labor away in factories, often in terrible conditions, the owners of Walmart and Nike rake in profits, enjoying their luxurious penthouses in Manhattan. Many find this compelling.
Trade and International Markets However, trade and the intervention of multinational corporations into developing economies have been important instruments in the alleviation of poverty worldwide. A 2010 study, for example, demonstrated that multinational corporations tend to use scarce resources with higher levels of efficiency than more local competitors. Moreover, they train their workers the effectively, raising worker productivity in the process. These benefit are imported by these companies into the developing world. Although wages paid in the developing world are not by any means attractive to the average "First World" citizen, multinationals do often pay their workers above local national averages, and certainly more than state-run companies do.
In Vietnam, Nike pays its workers salaries twice the national average, and three times those in state-run factories, which might truly be called sweatshops. Openness to free trade and the arrival of global business have been an important source of economic growth—hence the dramatic rise of living standards since the Industrial Revolution, by every available metric.
A famous study conducted in 1995 by Jeffrey Sachs and Andrew Warner found that all global poverty can be essentially attributed to three policies: socialism, expropriation and autarky (the attempted redistribution of wealth, the seizure of private property and, importantly, hostility toward free trade). The study specifically emphasized natural resources' lack of importance to economic growth (compare, for example, the living standards of oil-rich Venezuela and resource-scarce South Korea). To get rich quickly—and quicker than it already is—the developing world must remove its barriers to imports. Prices will drop, productivity will increase thanks to the availability of better equipment, wages will rise, and, consequently, poverty will drop.
The places most open to free trade have become some of the richest, such as Hong Kong, whose exports account for 177 percent of its GDP, whereas those most hostile to it, such as much of Africa, remain impoverished and with low growth. While trade allows companies to set up factories in the developing world—the photos of which are used by the Left to feed the anticapitalist sentiment—these "sweatshops" alleviate poverty in the end, and in doing so, reduce child labor and improve working conditions.
The greatest decline in child labor in Vietnam took place during the 1980s, when trade and outsourcing were the greatest. Regulation of cheap labor only prolongs it and potentially exacerbates poverty. During the Industrial Revolution in England, various regulations hindered the extermination of child labor—which had existed long before that time. Regulations limited children's working hours in comparatively high-paying sectors of the economy, and they were forced to seek labor in sectors where working conditions were markedly inferior.See Robert Hessen's "The Effects of the Industrial Revolution on Women and Children," in Ayn Rand, Capitalism: The Unknown Ideal (New York: Signet Books, 1967). Countries which have been the poster children of the anti–free trade, anticapitalist movement such as Bangladesh, Kenya and India are, ironically, some of the fastest growing because of the abundance of cheap labor there. Bangladesh sustained a per capita GDP growth rate of over 5 percent in 2018, and it is projected to be 16 percent richer by 2030 (or at least it was before the pandemic).
Business, Labor, and Property Freedom Free trade itself is not the only important component of growth. More importantly, business, labor, and property freedom must all be permitted to create competition, enhance productivity, and ultimately increase wages. Preventing these, however well intentioned the reasons, will only harm the people it seeks to help. A study conducted by Kevin Hasset, for example, found that a 1 percent increase in the corporate tax rate leads to a 0.5 percent decline in workers' wages. The claim that the developing world is the victim of capitalistic greed is fundamentally misguided. Developing countries often rank very low on the Index of Economic Freedom according to research conducted by the Heritage Foundation. Property rights, business freedom, and labor freedom have all been massively curtailed in Africa, South America, and still most of Asia. High regulations on planning systems have prevented construction, and as a result, slums have expanded. High business regulations have prevented entrepreneurial startups, permitting big corporations to monopolize industries in the first place, reducing competition, which depresses wages. Research conducted by the Fraser Institute has found that a 1 percent increase in red tape leads to a 5 percent decrease in the rate of business startups (especially in the technology sector). Intensive labor regulations have also damaged the operability of enterprises, severely compromising their ability to hire and fire new workers. It is well documented that higher labor regulations cause both higher levels of unemployment, and longer periods of unemployment for those seeking jobs, most comprehensively analysed by a 2011 study.
There is an obvious correlation between economic freedom and economic prosperity. The Heritage Foundation divides its economic freedom index into five different quintiles: free, mostly free, moderately free, mostly unfree and, finally, repressed. The freest countries are obviously the most prosperous, such as Hong Kong, Singapore, Switzerland, New Zealand, Australia, and Ireland, which rank highly in per capita income measurements (adjusted for purchasing power parity) and have exceptionally high living standards. The mostly free countries include Britain, the US, Canada, and Germany. They are still very prosperous, but not as prosperous as the upper quintile. Then come the moderately free nations, which include France, Italy, and Russia. They are rich by global standards but not compared to their rich neighbors. France and Italy, for example, have been slow to cut unemployment since the recession of 2008, with numbers still hovering above 6 percent. Then there are the mostly unfree countries. Most African and South Americans nations are in this quintile. And finally, there are the repressed countries. They include the Democratic Republic of Congo, Iran, and Cuba. You get the idea. The freer a country is, the richer it is—and most poor countries are unfree.
Myths of Colonial Aftermath Many allege that Africa’s poverty is the aftermath of brutal colonial rule under systems such as those of the British Empire or the Belgian monarchy instead of just poor policy decisions. It is true that colonialism was brutal and wicked. However, destructive rule does not mean that its victims cannot recover and prosper afterward, if they do things right. There are innumerable examples of nations which, through adopting the correct policies, have been able to rebuild themselves after colonial, imperial, and genocidal devastation. Germany had suffered more damage from the Second World War than perhaps any other country in Europe, having lost 20 percent of its housing and with its food production severely damaged. Soon after the war, it ended food rationing, changed its currency, and cut taxes. It experienced a greater economic recovery than many of its neighbors which had suffered less from the war. Another example is Rwanda, which suffered a genocide in 1994 in which it is estimated over five hundred thousand people were murdered. That year its economy contracted by a terrifying 50 percent of GDP, a number which puts even those of coronavirus to shame. Yet after the genocide, the Rwandan economy began to liberalize; it opened to trade, state-run industries were privatized, and regulations were cut. In 2019, according to the Heritage Foundation’s own index, Rwanda was the freest economy in Africa and the thirty-third freest worldwide. As a result, it is one of the fastest growing economies on earth, with an annual growth rate of 8 percent per annum.
Conclusion Economic liberalization has worked consistently: whether it be in China, India, New Zealand, Ireland, 1700s Scotland, Renaissance Italy, postwar Germany and Japan, Chile, 1990s Sweden, Industrial Era Germany (as well as all the other Nordic countries), or the United States under Bill Clinton. The market has always been successful in raising people's living standards, and the world—especially its poorer parts—need more of it, not less.
When gun-control advocates make international comparisons on homicide rates, they generally employ an assumption that places with more stringent gun control laws have lower homicide rates. Unfortunately for them, this only holds up when countries with both high levels of gun control and high homicide rates are excluded from the analysis.
By recognizing the need to exclude most of the world's nations from this analysis, the gun control advocates are of course implicitly admitting they recognize that gun control cannot explain low homicide rates in many areas. The case of Mexico, for example, illustrates quite well that simply imposing gun control does not eliminate problems with homicide.
So, what can explain these differences? Forced to admit that gun control does not explain low homicide rates by itself, even gun control advocates turn to other factors that are essential. Factors such as income, median age of the population, political stability, and other factors are suggested. Even environmental lead levels may be a factor.
Also important is a lack of cultural and ethnic uniformity within a jurisdiction.
This is especially notable when considering the Americas, where nation-states are in most cases frontier states with populations heavily affected by immigration, a history of conflict with indigenous populations, and institutionalized chattel slavery that lasted until the 19th century. The factors are significant through the region, and the United States cannot be held apart in this regard from the Caribbean, Brazil, Colombia, and other states impacted by all these factors.
Importantly, these factors also make the Americas significantly different from Western Europe and other areas — Japan and Korea, for example — where the present situation is marked by much higher levels of cultural uniformity and quite different recent histories and current demographic trends. This by itself, of course, does not explain all social trends and indicators. But anyone analyzing homicide rates in the Americas will tend to notice immediately that crime rates are high in the Americas overall, although legal regimes vary significantly.
The Academic LiteratureThere's nothing remotely new or novel about pointing out the role cultural and ethnic uniformity plays in crime rates. The mainstream academic literature on the topic is fairly robust.
In a now-famous 1942 paper, Clifford Shaw and Henry McKay suggested that what they call "social disorganization" arises from three major factors at the urban and neighborhood level: poverty, ethnic heterogeneity, and residential instability.
All of these factors contribute to lower levels of social cohesion, and thus higher levels of criminality and other socially-undesirable behaviors. In more recent years, researchers have attempted to use statistical data to test the theories of Shaw and McKay, and in at least some cases, have succeeded. Studies in both England and in Brazil have illustrated the important of considering these social cohesion factors.
Other research has focused remarked specifically on the issue of ethnic heterogeneity.
Writing on his book Urbanization and Crime: Germany 1871-1914, Eric A. Johnson found that urbanization did not necessarily lead to increasing crime rates — although this had long been assumed to be a key factor. What did lead to higher crime rates, he found, was the presence of a significant cultural and linguistic minority group within the new urban centers:
[T]he most significant differences between communities with high as opposed to low crime rates were .... usually found ... in their death rates and the size of their minority population. The type of ethnic minority population was also of great importance, however, as Poles and Lithuanians were the predominantly minority population in all the communities with high crime rates and large ethnic minority popluations."
The reason why the Slavic minorities had such high crime rates was that they were socially stigmatized, politically repressed, and usually at the bottom of the economic ladder.
Johnson concluded:
Whereas communites made up of purely German speakers of communities with sizable western European minority populations had low death rates, and the Danes and Dutch had very low death rates, the Polish and Lithuanian minorities nearly always resided in communities where people lived hard lives and died young.
The positive correlation ... between the male homicide rate and the percentage of ethnic inhabitants in a district demonstrates the more ethnic the community was, the greater the number of homicide deaths of male inhabitants.
Johnson's work shows us that a key factor in understanding crime rates is understanding the role of minority groups that are seen and treated as distinct from the majority population, in a negative way. These factors are then magnified if there is an economic difference between the majority group — or the most politically influential group — and the minority group in question.
This phenomenon is of course not limited to the 19th century or Europe. Indeed, it is a global phenomenon, and, as Michael Tonry noted in his often-cited book Ethnicity, Crime, and Immigation: "In every country, crime and incarceration rates for members of some minority groups greatly exceed those for the majority population."
This observation is echoed by any number of scholarly studies, including this one by Cyndi Banks who expands on Tonry's observation, pointing out:
For example, in the Netherlands, the greatest disparities [in delinquency] are experienced by immigrants from Morocco and Surinam, and in Sweden the greatest disproportionality in arrests affects immigrants from Arab states, South America and Eastern Europe. In France, the highest rates of imprisonment affect people from Algeria, Morocco, and Tunisia.
Other modern examples can be found as well.
In the late 19th and early 20th century in Argentina and the United States — according to the natives — it was Italians who were driving increases in crime. Writing in Immigration and Nationalism: Argentina and Chile 1890-1914, Carl Solberg writes:
Between 1887 and 1912 the city's population tripled, but the number of crimes reported increased seven times. Much of this was blamed on men of Italian descent who had begun to move to [Buenos Aires] in large numbers in the late 19th century, leading one anti-Italian writer in Argentina to remark that the mark of the ethnic Italian was "his inseparable steel knife, his volcanic temperament and his excitable aggressive passions."
Majority opinions of ethnic Italians in the United States during this period were often even lower.
Acceptance of a correlation in this regard is common throughout the academic literature. However, the given reasons for this correlation vary widely among different political and pressure groups.
White supremacists, of course, seize on this information to make the claim that certain ethnic groups are inherently more inclined toward criminal behavior. When they see the term "ethnic heterogeneity" what they think is "not enough white people."
There are problems with this assumption however. For one, as noted above, even minorities that are obviously "white" by modern standard can cause higher crime rates to appear, as in the case of the Poles and Lithuanians in 19th-century Germany. Moreover, homicide rates in modern Mexico suggest that it is in the areas where indigenous Indians are most numerous — i.e., southern Mexico — where homicide rates are lowest. It is in the more diverse north — where the population of European descent is higher — where crime and disorder is more common.
Other studies have showed the key factor in many studies of violence is indeed heterogeneity, and not simply "the number of white people."
A 1950s study of Baltimore conducted by Bernard Lander, for example, found that the rate of delinquency for both whites and blacks in the area rose as the percentage of blacks rose from 0 to about 50 percent, and then decreased as the percentage of blacks rose from 50 to 100 percent.Toward an Understanding of Juvenile Delinquency by Bernard Lander, 1954, Columbia University Press. Lander concluded that "[a]reas of maximum racial heterogeneity are characterized by the largest extent of social instability and anomie."
A 1982 study by Henry B. Hansmann and John M. Quigley concludes "there is a significant, if complex, relationship between homicide rates and measures of heterogeneity."
Within the mainstream academic literature authors often view the genesis of this inter-ethnic conflict as being one in which individuals within minority groups tend to behave differently as a result of legal and social discrimination on the part of the majority.
This view is buttressed by the example of Polish and Lithuanian minorities within Germany, for example, since modern-day Poles within Poland (and modern-day Lithuanians within Lithuania) have unremarkable crime rates. Similarly, one might point to the historical experience of ethnic Italians in the United States and Argentina — and the fact that crime rates in modern-day Italy itself are low in a global context.
These factors continue to be important throughout the Americas, where nation states are frontier states that were settled only recently, in historical terms.
Last year, I noted in this article that there are unique factors that drove the importation of labor — both free and slave — in the Americas. This has led to a modern demographic situation that is in some ways unique to the nation-states of the Americas.
Similarly, when considering the role of ethnic heterogeneity in modern "social disorganization," the United States is distinct from much of the world in its residential mobility as well. Unsettled communities, coupled with ethnic heterogeneity — at least according to Shaw and McKay — is a recipe for greater levels of crime, poor health, and other negative social factors.
While there is often a temptation to look at these issues as simply a matter to be solved by passing a few laws here and there, the situation is likely far more complex.
By the time you finish reading this article, some 600 people from all over the world will have escaped poverty.
In 1990, 35% of the world population lived in extreme poverty. Today, that figure has fallen to 10.7%, according to the World Bank.
In 1987, there were 660 million poor people in China. After its economy opened, that figure has fallen to only 25 million. In the same period, in India, the number of poor citizens has been reduced by more than 100 million people.
Additionally, 140 million people join the middle class every year.
Despite these achievements, we are living in a time when this excellent news is ignored to focus on interventionist messages about wealth. You will read that “1% of the world controls 87% of wealth” and things like “if the ten richest people in the world gave up their wealth there would be no poverty.”
The 635 million Chinese who have escaped poverty in the last 30 years disagree. They are delighted that China is the country where the most millionaires are created every year and where the middle class grows the most, and thanks to prosperity there is a “growing inequality” that is not negative at all, but positive. Inequality was 0.30 when China was starving. It is 0.50 today and the vast majority of Chinese citizens are richer and better-off. Over the last 30 years, urban disposable income per capita in China grew at an impressive 13.2% annually while the share of the population that lives in urban areas increased from 22 to 53%.
Thanks to liberalization, opening the economy, and capitalism, millions of poor people escape poverty, millions become part of the middle class and a few who, thanks to progress, become millionaires. Nothing bad there.
But interventionists do not focus on the successful models that have led to the unprecedented fall in poverty, they focus on “inequality.” If the world eradicates poverty, the bureaucrat’s job is gone.
Capitalism and free markets are not only proven to be the best and most efficient way to reduce poverty. Capitalist societies thrive reducing poverty and increasing the middle class. It means more and better consumers, better and more sustainable products and more development … and with it, more profits and better public services. Those who suffer from reducing poverty are the interventionists, the “redistributors of nothing.”
Contrary to what the defenders of fiscal repression say, capitalism does not benefit from poverty, it is bureaucracy and interventionism who “benefit” from keeping people poor. It creates unwilling hostage-clients to their “solidarity” with other people’s money.
To think that confiscating the wealth of the rich would end poverty is ridiculous. It seems incredible that in 2018 we need to remind people of the disaster and exponential increase in poverty that was created by expropriating the rich since the time of the assignats after the French Revolution to the recent examples of Greece, Argentina, Zimbabwe, Venezuela, etc. The list is endless.
The expropriation of wealth has only generated poverty and worse conditions for all. Besides, it is a lie. Once you expropriate the wealth of the richest citizens, in addition to destroying the employment of thousands of people, it does not remove the poor from their misery. What happens the following year? There are no more rich people to plunder. The number of poor increases and misery multiplies on the evidence that, if you penalize success, you share failure.
Every January we witness two events, Davos and the Oxfam report. Many of you will think that they are two different and even antagonistic events, and yet they have a common thread. The glorification of interventionism as a solution to the problems created by interventionism.
It is not a coincidence. The transfer of wealth from the savers and the successful to governments is a good business. When it fails, it is always blamed on not having enough intervention. However, there is clear evidence of the economic disaster that is created when governments put as central objectives redistribution and equality. Because these are consequences of prosperity, growth and employment, not policy.
After Interventionism, There Is Nothing Left to RedistributeInequality is not the same as injustice, as Nobel prize winner Angus Deaton explains, and it is not surprising that interventionists insist on placing inequality as the biggest problem instead of poverty and how to accelerate the growth of the middle class. They are the ones who pay for state excesses with higher taxes. Reality is that a Gini coefficient of 0.40 is, in fact, a very high level of equality
It is not a coincidence that societies with greater economic freedom also have higher incomes and better welfare, and even those who preach socialism know this. They collect donations and set their headquarters in the successful and rich west. Empty vessels make the most noise: California’s “redistribution” political agenda has resulted in an income inequality that is worse than Mexico’s, and the highest poverty level in America.
Capitalism and free trade have done more to reduce poverty than all government committees combined. For the bureaucrat the objective is to maintain the apparatus, not to make it unnecessary.
The debate about poverty and inequality has become an excuse to intervene, not how to keep improving. Interventionists do not want the poor to be less poor, just make the middle and upper classes less rich .
Interventionism assumes that inequality is a negative effect, not a consequence of prosperity. And some inequality is positive. If my co-workers are more successful than I am, it is an incentive for me to do better. Only when there is an inequality generated by success do societies progress, and welfare improves for all.
There is no greater inequality and injustice than egalitarianism, which eliminates merit and the incentive to improve. Egalitarianism not only does not reduce poverty, it increases it. Maybe, as Oxfam praised in Venezuela eight years ago , “inequality is reduced,” by making everyone poor, except the redistributors. Those become millionaires.
One of the cardinal rules of government accounting and rhetoric is to call any slowdown in the growth rate of government spending a "cut." This gives the impression that less is being spent when more is being spent. It's just that less is being spent than the government had planned on spending otherwise.
With the discussion over the Trump budget this week, there's lots of talk of cuts, but it's important to remember that there are absolutely no cuts whatsoever in the actual amount of money the government plans to spend.
According to the Trump plan, there is a slight decrease in total spending increase compared to what had been planned in the baseline budget. Trump wants to increase spending by 16 percent from 2016 to 2020, while the baseline assumed a 20 percent increase. (See page 35.) Trump plans to increase outlays from from $3.8 trillion to $4.4 trillion, from now until 2020.
That's great and all — I'll believe it when I see it — but let's not be fooled into thinking there's anything going on here that might be called a "cut."
Meanwhile, of course, the federal government will continue to rack up huge deficits adding to the enormous national debt.
To make this look less bad, the Trump administration has invented revenue numbers out of thin air that the administration claims will reduce the annual budget deficit to zero dollars ten years from now — in 2027.
This not only assumes continued robust tax collections — even though tax revenue recently hit an 80-month low — but also assumes there will be no recession in the United State for another decade.
Good luck with that.
Naturally, one should completely ignore any budget cut that the feds say will happen ten years from now.
To be fair, when the media and the administration talk about cuts, they are often talking about specific components of the budget, and not the budget overall.
"$800 billion in Medicaid cuts" blares one CNN headline.
Really? Where exactly are these cuts? According to page 35 of the Trump budget proposal, Medicaid will increase by 19 percent from 2016 to 2020, rising from $368 billion to $439 billion.
What they really mean by cuts is this: the Trump administration proposes to increase Medicaid funding by less than what had been proposed earlier in the "baseline" report. In the baseline, Medicaid was supposed to increase by 23 percent from 2016 to 2020. If Trump gets his way with his new budget (which he won't) Medicaid will "only" increase by 19 percent.
Keep in mind this is all hypothetical planning for the future. And, of course, by no definition whatsoever is Medicaid being cut. The budgeted amounts will all increase from 2016 to 2020, and on into the future.
Nor are there any cuts to Social Security and Medicare by either the real-life definition of "cuts" or the fake DC version of the word. Under Trump's plan, those programs will increase as much as planned in the baseline. Trump wants increases of 25 percent and 19 percent in Social Security and Medicare, respectively.
Military spending under Trump will of course increase by more than was planned in the baseline. Trump wants an increase of 14.6 percent in military spending, while the baseline had assumed an increase of 9 percent. In other words, Trump wants $85 billion more in military spending from 2016 to 2020. The baseline had assumed only $55 billion more.
RELATED: "Trump Readies a New Pentagon Spending Binge"
Trump does propose to do some actual cuts in minor programs.
Between Medicare, Social Security, and the military, we're looking at about 58 percent of the total federal budget as it was in 2015. We see that Trump wants no cuts there at all. The largest chunk of spending outside this 58 percent is Medicaid, which we also see will increase by 19 percent.
Real-life cuts are proposed on poverty relief (such as TANF) and other less-famous programs. These actual cuts must happen to the Trump administration spend more on the military without sizable growth in the total budget figures.
The Trump plan is, essentially, just a reshuffling of the huge budget to favor certain interest groups, without doing anything at all to actually confront the massive liabilities in the nation's largest entitlement programs. That can will be kicked down the road yet again.
Nevertheless, if there were any chance of this budget being accepted by Congress, it would represent a tiny bit of progress in the areas of discretionary spending.
Unfortunately, what's more likely to happen is that, instead of any actual cuts, every interest group will just get more of what it wants. Congress will forget about any of the cuts Trump wants, but will also give him most of the spending increases he wants. This will grow the overall budget.
Meanwhile, Trump wants tax cuts, which will only mean more deficit spending, and thus more tax increases in real terms.
This is what we call "business as usual" in Washington.
Earlier this year, I explained why Nordic nations are not socialist. Or, to be more precise, I wrote that if they are socialist, then so is the United States.
[RELATED: Bernie Sanders Is Right: The US Is Already a "Socialist" Country by Ryan McMaken]
And my slam-dunk evidence was this chart from the Fraser Institute’s Economic Freedom of the World ., which shows that there is almost no difference in overall economic liberty when comparing the United States with Finland, Norway, Sweden, and Denmark.
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This doesn’t mean, incidentally, that we have identical policies. I pointed out that the United States gets a better (less worse) score on fiscal policy, but also reiterated that Nordic nations are more market oriented than America when looking at other variables (especially rule of law ).
The net effect, though, is that we wind up with near-identical scores.
I’m rehashing this old data because there’s a column in The Week that celebrates Norway as an example of “democratic socialism.”
The spectacular upset victory of Alexandria Ocasio-Cortez in her recent New York congressional primary election has catapulted the topic of democratic socialism to the top of America’s political discussion. …we have a country that very closely approximates the democratic socialist ideal. It’s a place that is…considerably more successful than the United States on virtually every social metric one can name. I’m talking about Norway. …Norwegian workers are heavily protected, with 70 percent of workers covered by union contracts, and over a third directly employed by the government. The Norwegian state operates a gigantic sovereign wealth fund, and its financial assets total 331 percent of its GDP… Meanwhile, its state-owned enterprises are worth 87 percent of GDP. Of all the domestic wealth in Norway, the government owns 59 percent, and fully three-quarters of the non-home wealth.
I don’t know if those specific statistics are true, but I certainly don’t disagree with the assertion that Norway has a large public sector.
But here are a couple of passages that don’t pass the laugh test.
Norway is unquestionably more socialist than Venezuela… Indeed, it is considerably more socialist than supposedly-communist China.
This is absurdly inaccurate. If there was a thermonuclear version of wrong, you would be seeing a giant mushroom cloud.
Here’s the data on overall economic freedom for Norway, Venezuela, and China. As you can see, Norway is far more market oriented.
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So how does the author, Ryan Cooper, rationalize his fantastical assertion of Norwegian super-socialism?
If you read the article, he has a tortured definition of democratic socialism. One of his variables is government ownership, which normally would be a reasonable piece of data to include.
But it’s an artificial number when looking at Norway since the government controls the nation’s oil and also has a big sovereign wealth fund that was financed by oil revenue.
In other words, Norway is geographically lucky because all that oil boosts Norwegian GDP. It makes Norwegians relatively prosperous. And it definitely helps partially offset the economic damage of big government.
But it’s nonsensical to argue that oil-rich Norway somehow provides evidence for overall notion of democratic socialism. It’s sort of like looking at data for Kuwait and asserting that the best economic system is a hereditary sheikdom.
Yet he wants people to support socialism simply because of Norway, as illustrated by this final excerpt.
…when it comes to building a decent place to live, Norway is completely blowing America out of the water. So while conservatives have been pointedly ignoring the most obvious and relevant piece of evidence in their spittle-flecked tirades against socialism, Norwegians can and do point to the United States as an example of what happens when you let capitalism run wild.
But there’s one itsy-bitsy, teeny-weeny problem. As you can see from the chart , Norway and the United States have almost identical levels of economic liberty.
So if America is “capitalism run wild,” then so is Norway. Or if Norway is “socialism,” then so is the United States.
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The bottom line is that both the United States and Norway are admirable nations by global standards. We both rank in the top-20 percent for overall economic freedom.
But we’re not Hong Kong or Singapore , so we both obviously should do a better job of following the recipe for greater prosperity.
[Originally published at International Liberty.]
During the 1987 Whittier Narrows earthquake in Los Angeles, my mother was working in downtown Los Angeles in one of the buildings then known as the Arco Towers.
The building was of early 1970s vintage, but thanks to expensive technology introduced to help high-rises withstand earthquakes, the Arco Towers merely swayed from side to side, rather than collapse in response to the quake. That earthquake was a medium-sized earthquake (to use casual terminology), but the building is designed to withstand far larger tremors. Eight people died in the wake of the quake.
Two years earlier, the 1985 Mexico City earthquake struck with devastating results. While the earthquake was considerably stronger, the casualty totals were far beyond what we would expect were a similar quake to hit Los Angeles. While the number is still in dispute today, more than 30,000 people may have died in the quake, thanks largely to collapsed buildings.
Fortunately, the death toll in Tuesday's Mexico-City quake looks to be much, much smaller than was the case in 1985. So far, casualty counts number in the low hundreds.
The Wall Street Journal today attributes this to improvements in building codes:
Mexico City’s building codes improved dramatically in the years following the city’s 1985 earthquake, a magnitude 8.1 temblor that killed more than 6,000 and toppled nearly 2,300 buildings, including hospitals, schools, hotels and entire high-rise apartment blocks.
After 1985, “the building codes changed a lot,” said Ricardo Warman, an architect who both builds and renovates houses in the Condesa and Roma neighborhoods of central Mexico City, among the hardest hit on Tuesday. “That is why most of the buildings that fell are from the 1950s, ’60s and ’70s.”
But why was Mexico still building earthquake-prone construction in the 1970s? By the mid-80s, California had already been at work addressing the earthquake issue for years.
Why didn't Mexican cities pass better building code laws before then?
RELATED: "Why Natural Disasters Are Worse For Poor Countries" by Ryan McMaken
Well, it turns out that they did have building codes before then, but merely passing laws doesn't actually solve problems. Prior to this week's quake — while commenting on Hurricane Harvey — Bret Stephens at the New York Times recalled:
Why do richer countries fare so much better than poorer ones when it comes to natural disasters? It isn’t just better regulation. I grew up in Mexico City, which adopted stringent building codes following a devastating earthquake in 1957. That didn’t save the city in the 1985 earthquake, when we learned that those codes had been flouted for years by lax or corrupt building inspectors, and thousands of people were buried under the rubble of shoddy construction. Regulation is only as good, or bad, as its enforcement.
So, for nearly 30 years leading up to the 1985 quake, new, improved building codes had been in place. but it seems that — as one Mexico City engineer described it — enforcement was "very lax."
But why did they ignore them? Was it part of just an amorphous tolerance for doing a lousy job? As Walter Block recently noted, we can't just blame corruption:
They can have all the regulations and “safety standards” they want in poverty-stricken nations such as [Bangladesh]. Either these bureaucratic rules will be ignored, or, if they are rigidly upheld and enforced, then virtually no new houses will be built, and almost all extant houses will have to be torn down. Why? Since this country is so poor, it cannot possibly live “up” to these modern, western, regulations and “safety standards.”
In most cases, people don't ignore building codes because they're sociopaths who don't care about the safety of their customers.
Thanks to the existence of greed, of course, there's always the temptation to skimp on safety in order to pad profits, and just hope things work out. But in wealthy nations, there are numerous incentives beyond government regulation to not do this: (1) insurance companies may refuse to insure structures that are of questionable safety, and (2) there are well-developed legal systems that facilitate lawsuits against negligent builders.
But perhaps most importantly: consumers of housing and office space in wealthy countries can more often afford to pay for units in buildings where expensive retrofits and safety features have been added. In poor countries, by contrast, consumers are far less likely to be able to afford buildings constructed to specifications that would be considered run-of-the-mill in wealthier areas. Given that producers can only set prices at levels their customers can afford to pay, builders will build accordingly.
The end result is that in wealthy areas, paying close attention to code regulations may shave some profitability off a building project. But in a poor country — as Block correctly suggests — rigid enforcement is more likely to totally erase profitability, and prevent new construction from being built at all. On other words, the opportunity cost of building a modern, earthquake-proof building in a poor country is much higher.
So what's the solution?
As Stephens points out: "Every child knows that houses of brick are safer than houses of wood or straw — and therefore cost more to build." Mexicans — of course — are already well aware that the ideal solution is to produce high quality housing for everyone. The problem is that sort of thing is expensive.
Unfortunately, the answer to this conundrum is the same as with building to withstand hurricanes and other natural disasters: bulding wealth is the only true long term solution.
City councils can pass building code laws all day long, but as long as residents lacks the incomes necessary to afford housing, offices, and factory space that's built to withstand earthquakes, there will always be an especially large incentive to cut corners on construction. Innocent people will suffer as a result.
As the issue of reparations for victims of slavery rages within the Democratic party and on cable news stations, we encounter a common problem: virtually no one is addressing the specifics of how such a reparations effort would be administered. Who exactly would receive these reparations payments? Who would pay them? How would guilt and victimhood be determined? As is usually the case with American policy debates, this "debate" offers little more than an opportunity for pundits and activists to grandstand on related issues such as poverty and race — while avoiding the central topic at hand. Support or opposition then becomes nothing more than a matter of affirming one's political loyalties. The actual issue of reparations — and how they'd be paid out — is mostly ignored. This may be partly because the proposed schemes are nothing that could be properly called reparations at all. They're just an effort to expand government benefits for certain groups.
It is important to remember, however, that there is nothing necessarily problematic about the idea of paying reparations to the victims of a crime. In fact, the idea is essentially pro-private-property because it attempts to repay a victim for property stolen from him or her by another party.
After all, any decent legal system would provide for a victim of kidnapping and forced labor to obtain repayment for the time and labor stolen from him by the kidnapper. As Walter Block writes:
Justified reparations are nothing more and nothing less than the forced return of stolen property — even after a significant amount of time has passed. For example, if my grandfather stole a ring from your grandfather, and then bequeathed it to me through the intermediation of my father, then I am, presently, the illegitimate owner of that piece of jewelry. To take the position that reparations are always and forever unjustified is to give an imprimatur to theft, provided a sufficient time period has elapsed. In the just society, your father would have inherited the ring from his own parent, and then given it to you. It is thus not a violation of property rights, but a logical implication of them, to force me to give over this ill-gotten gain to you.
But here's the rub: in order to do this with an eye toward justice, one must identify specific victims and specific perpetrators. Potentially, as Block suggests, one could envision a legal case in which the heirs of victims would be paid reparations by the heirs of the perpetrators. But again, we still encounter the problem of identifying specific persons (and heirs) involved. Reparations cannot be paid in the abstract, as Chris Calton has noted:
[L]ibertarian ethics are not based on abstract moral claims; they’re based on concretely identifiable property rights. When a violation of a person’s property rights takes place, restitution is the logical means of compensating the victim ...
But in the real world [on matters of slavery] such a claim is incredibly difficult to prove. And failure to prove a legitimate property claim means that the currently recognized property title holds. Anything else would be committing a new injustice to give the illusion of correcting an old one.
Not surprisingly, current advocates for reparations conveniently ignore this last part. For them, a just outcomes can be achieved simple by declaring that one one group of people (the taxpayer) shall pay reparations without any attempt to establish anyone's guilt or innocence in the matter. A program that forces all taxpayers (whether guilty or not of any relevant crimes) to pay reparations to a specific group of people raises several key problems:
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What if a taxpayer is descended from people who didn't even arrive in the country until after emancipation? That is, should a Japanese-American, whose immigrant ancestors arrived in the United States in 1910, be forced to pay reparations? How about descendants of Mexicans who arrived in the US in 1925?
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What if the taxpayer has some ancestors who lived in the US before emancipation and some who arrived here afterward? Would that person's "reparation tax bill" be pro-rated to match the fraction of his ancestry that shared antebellum guilt?
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What if a taxpayer's ancestors were abolitionists who opposed slavery?
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What if a taxpayer has no ancestors who owned slaves?
The (Bad) Economics of Collective Guilt Do not expect any pro-reparations policymakers to even attempt to answer these questions. Naturally, where it is possible to establish a specific person profited from kidnapping and assault (i.e., enslavement) perpetrated by one's ancestors, then it would be potentially ethical and moral to demand reparations in these cases.
To get around these difficulties, many activists may claim that "everyone" is guilty of slavery in an extremely abstract way. For example, perhaps one's ancestor once bought a cheap cotton shirt in 1858, and thus "profited from slavery" by buying inexpensive clothing. Or perhaps one's ancestor (even unwittingly) sold timbers to ship builders who made slaving ships. These arguments rely on the same twisted logic which would have us believe that people who buy gasoline are morally responsible for the brutality of the Saudi Arabian dictators, or that a teenager who smokes a joint is responsible for terrorism like that perpetrated on 9-11. (Yes, the US government created an ad campaign saying exactly this.)
This everyone-is-guilty claim, in fact, is one invented by the slaveowners themselves in an attempt to claim that all Americans — including people who claimed to oppose slavery — somehow directly benefited from slavery, and thus all abolitionists were hypocrites. It was always a desperate and unconvincing argument, but by putting these claims forward, the slavedrivers of old helped pave the way for the modern-day reparations advocates.
In real life, the only people responsible for slavery are the people who directly owned, sold, or traded in slaves; and the politicians who pushed to preserve, spread, or defend slavery through legislation and the state's police powers.
Slavery Suppressed Wages for Many Workers Moreover, many non-slaves can be shown to have been negatively impacted by slavery because it acted to suppress wages. As historian Keri Leigh Merritt describes in detail in her book Masterless Men: Poor Whites and Slavery in the Antebellum South, non-slaveholding whites in the South — who constituted a majority of the population — received far lower wages than they would have had they not been forced to compete with slave labor by a legal system designed to favor slaveowners.
The experience of white laborers illustrates how the benefits of the slave economy were highly concentrated among the wealthy elite. Yes, the chattel slaves themselves fared far worse than any other group. But that doesn't mean most non-slaveowners of the time were — to use the modern parlance — "privileged" by the existence of the slave economy. In practice, it significantly lowered their income.
Ultimately, the issue shouldn't even be regarded as a complicated one. If "reparations" are truly that, then they can only be based on handing over stolen property from the thief to the victim (or their heirs). So long as these specific individuals are not identified, then the policy being discussed has nothing to do with reparations. It's just a wealth redistribution scheme.
Listen to the Audio Mises Wire version of this article. Whining and complaining about inequality is a growth industry. Thomas Piketty’s book (or perhaps a large virtue-signaling paperweight), about how the rich are getting richer, achieved bestseller status and is now a movie.
Understanding the flaws in the wealth inequality argument is increasingly important, because the communist wing of the Democratic Party is now openly advocating a wealth tax. In this article I will explain why measures of wealth inequality overstate actual inequality in terms of the standard of living of wealthy people relative to the rest.
Some of the complaining about inequality focuses on income and some on wealth. I will first focus on why both matter and why looking at only one or the other gives an incomplete picture. Depending on where someone sits on the net worth spectrum, their consumption opportunities will depend to a lesser or greater extent on the balance between their wages, their savings, and their time preference.
Measuring Wealth vs. Measuring Income Differences in the amount of savings between people gives an incomplete picture, because many people starting out in the workforce lack much savings but have decades of income earning ahead of them during which they may save. By the same token, many older people have accumulated savings that they will rely on either for income or to spend directly as they wind down their participation in the labor market. The consumption of someone without savings must be funded by their wages. For those in the middle (with some wages and some savings), time preference will determine how they balance wages and savings. A younger person might own several income-generating properties but choose to reinvest the rental payments in purchasing additional properties instead of spending, in order to have more income in later years.
As a starting point, I think that those who are concerned about inequality should look at inequality of consumption opportunities. The purpose of all production is to create more goods and services for consumption. The production of intermediate (capital) goods is undertaken, because they can yield more consumption goods down the road. A lot of the measured net worth inequality does not translate into inequality of consumption opportunities, which are inherently far more equally available than the net worth measurements would suggest.
Let’s start with some numbers. CNBC cites a Federal Reserve finding that Americans' median net worth is about $100,000. Median income for US households in 2018 was near $64,000 in 2019 according to census data. Wikipedia cites Federal Reserve data showing that the wealthiest 1 percent own 40 percent of wealth in the US. A bit of math shows the typical one percenter having sixty-six times the resources of the average person in the lower 99 percent.
What If We Redistributed the Wealth of Billionaires? Wikipedia notes of the entire net worth of US households and nonprofits that “If divided equally among 124 million U.S. households, this would be $862,000 per family.” The idea that if all of the resources of the 1 percent were distributed more uniformly everyone in the 99 percent could have a much higher standard of living is not true, because there are not enough consumption goods for everyone to have $862,000 in consumption goods.
That sounds like a lot of inequality, but does it translate to a sixty-six-fold higher standard of living? To say that it does is to assume that a given dollar amount of net worth represents an equal dollar amount of consumption possibilities. To take a recent example from the news, Michael Bloomberg's net worth is $60 billion. According to this way of thinking, his savings when redistributed would provide $158 for every member of the US population (not, as one mathematically challenged journalist tweeted, $1 million dollars for every American), enough to afford a frost faux fox fur throw blanket while still leaving Bloomberg with about $8 billion to pay his servants and maintain his mansions. Surely enough billions for anyone. If a smaller group were selected to benefit from this redistribution, it would fund a $100,000 house for 600,000 Americans or a brand new car for 1.8 million.
There are two problems with this line of thinking. The first is that net worth totals are dollar values of two different kinds of things—capital goods and consumption goods, of which capital goods make up the larger part. Capital goods can not be alchemically transformed into consumption goods. The second problem is that efforts to turn the savings of some into consumption goods for others will in the end reduce the amount of consumption goods for everyone.
To understand the balance between consumption goods and capital goods, let’s first arrive at a rough estimate of the size of the subcomponents of net worth in America. Federal Reserve economic data calculates $107 trillion in private net worth in the United States. The subcomponents show that individual direct holdings of real estate at $32 trillion are the main contributor to household net worth, although another chart shows that about one-third of that amount is mortgaged (some of which might show up as corporate net worth).
The market value of US corporations is $45 trillion. Government assets (which constitute another $12 trillion) tend to be capital goods such as power generators, roads, ports, and office buildings. Though it is unclear who owns them, let’s add that amount to the capital goods side for a total of $57 trillion of capital goods. Although this accounting is approximate, it makes the point that more than half of all wealth is in the form of capital goods and that nearly all wealth is in capital goods and durable consumer goods (residential real estate). The remaining consumption goods are mostly short duration items such as food and household goods or medium duration items such as cars and appliances.
Thomas E. Woods Jr. and Robert P. Murphy have often made the point on episodes of Contra Krugman that “the rich” do not have all of their assets in cash. They own some combination of nonpublic businesses and financial assets (which are claims on the assets of other businesses). Woods and Murphy have also pointed out that a wealthy person could, if required to do so, sell capital goods for cash and to pay his equality tax levy. However, he could only do so by finding buyers for his businesses or assets who would necessarily be other wealthy people.
Consumption Goods vs. Capital Goods: Why It Matters The key observation here is that transactions among the rich that change the ownership of existing capital goods leave the amount of consumption goods unchanged. There is a deeper reason why taxing wealth does not create more equality: there simply are not enough consumption goods in existence to provide everyone the opportunities suggested by the richest fraction's net worth in dollars. Net worth is an aggregated dollar value of market prices of consumption and capital goods—mostly capital goods.
If you had that quantity of dollars, then you could buy an equivalent quantity of consumption goods. But everyone could do this only if all the goods in existence were consumption goods. And this is necessarily not true, because the cash and capital goods that exist are not consumption goods.
I have explained that this way of thinking about inequality overstates the extent to which the wealthy have more consumption possibilities than the average person. By how much? For a wealthy individual the ability to liquidate wealth to respond to an emergency is clearly something worth having. But the rich generally do not take all their possible consumption opportunities at once because of their time preference. They prefer to have the same level of consumption for themselves over the foreseeable future and their children and perhaps subsequent generations rather than consume more.
If you look at the stream of consumption goods that flows from capital goods as a yield, the average wealthy person can earn the average real yield on financial assets, which is a number below the 2–3 percent range after inflation, or somewhere from one-thirtieth to one-fiftieth of the portfolio value. When divided by thirty or fifty, the sixty-six-fold difference implied by net worth comparisons is in the range of 1–2.
Even if you are a peer of Michael Bloomberg, it might be difficult, beyond a point, to find enough consumption goods. Any one family could only realistically own a small number of homes and employ a manageable number of servants, and it’s hard to see the need for more than one or two private jets and, at most, a small handful of professional sports teams. Even the individual who set out to maximize consumption would at some point find that their time became the most scarce factor and that they did not have time to consume more goods and services. At some point consumption would compete with nonconsumption activities such as family life, walking outdoors, or contemplation.
Art Carden argues elsewhere on this site that even measuring differences in consumption spending overstates the extent of actual inequality. An example of this is that I drive a car that has a book value of $2,000. I live in a zip code where many of my neighbors ride in a vehicle which costs easily twenty to thirty times as much, yet my car serves almost as well at transporting me where I want to go as would a far more expensive car. The high-end car is safer, more comfortable, and handles better, but the big difference in life possibilities comes from not having a car to having a car.
Even that has changed through the ubiquitous availability of ride sharing services. Although ride shares are more costly to use on a per-mile basis, they remove the large up-front costs of buying a car, and they remove the fixed costs of insurance and garage space for those who do not drive very often. Ride sharing provides what W.H. Hutt calls the “availability service” of a car without the need for ownership. Ride sharing enables someone with a modest income that does not allow them to afford a car to make targeted purchases of important travel services at an overall lower annual cost. Someone who spends $2,000 per year on ride sharing gets at least 80 percent of the consumption value of a car with an all-in annual cost of ownership which could be more like $10,000 or more when depreciation, parking, a garage, gas, and insurance are included.
Given that the limiting factor is the scarcity of consumption goods, could production be reorganized to have more consumption goods and fewer capital goods to achieve the goal of having the consumption goods more evenly distributed? The answer is no. For the average standard of living to rise, labor must become more productive. As an economy grows, it must become more capital intensive, not less. The amount of capital goods per worker must increase through savings and investment. A larger capital stock increases the productivity of the average worker and therefore raises real wages. As the average worker is able produce more economic value, their real wages increase through either rising nominal wages or supply-driven fall in prices.
The only way to create more consumption goods is to create more capital goods, and as an economy grows, more capital goods must be produced compared to consumption goods. Those capital goods are all owned by someone—whether a small number of already wealthy people, newly wealthy people, or a large number of middle-class investors. It’s not necessarily the case that this will produce more net worth inequality, but it may because the ability to produce capital goods and consumption goods is not evenly distributed—those who are good at it end up owning more. On this point we get some help from our unlikely friend Senator Bernie Sanders, who explained, “If you write a best-selling book, you [too] can be a millionaire.”
The analysis of net worth inequality suggests far more inequality of living standards than actually exists. It implies that all wealth—including capital goods—is available for consumption. A large share of the on-paper net worth inequality comes from stewardship of capital goods. This stewardship is critical, because more consumption requires more capital goods—which probably means more on-paper net worth inequality, because those who are best able to produce the capital goods will end up owning more of them .
Listen to the Audio Mises Wire version of this article. Almost any economist who has taught at a Christian college or operates in Christian academic circles has been asked the question, “What about the poor?” Most of the time, people ask the question in the spirit of dismissing any view of economics that favors free markets. Although there are a few Christian colleges where at least the economics faculty might look favorably upon a market economy, the hostility toward free markets is as strong at most Christian colleges as it is in the most left-wing institutions of higher learning.
In the first (and last) meeting I attended of the Association of Christian Economists in 2001, the session was dominated by a panel discussion of hard-left economists who sought to “practice shalom” in their communities in outreaches toward poor people in their area. At one point in the session, the economists all enthusiastically agreed that because of free markets, poverty in the United States had been rapidly increasing, which made it “necessary for the government to step in” with the antipoverty programs of Lyndon Johnson’s Great Society initiative.
That poverty rates were increasing in the USA in the post–World War II era is patently untrue, even if Christian economists swear fealty to such a belief. Indeed, poverty rates were falling rapidly long before Johnson’s “War on Poverty” and the numbers bear out that claim, but these economists stuck to the narrative that the state must forever be rescuing the poor from the hellish existence of free enterprise.
All of this might come as a surprise to people who think of evangelical Christians as being politically conservative (certainly, many, but not all, are politically conservative), and certainly evangelicals have been one of the most important and reliable political bases for the Republican Party since the election of Ronald Reagan in 1980. That should not be surprising given the absolutist stand by the Democratic Party on issues like gay and transgender rights and the availability of abortion on demand, issues that evangelicals who hold to the authority of the Bible deem to be important.
However, on economics, many evangelicals, while rejecting outright socialism, also have a hard time accepting free market economics and often call for a “third way” to economic life. Because of my experience teaching in Christian colleges, I believe I understand the source of the discontent: the very nature of economics, scarcity, and tradeoffs, which are fundamental to economic thinking.
In a recent Mises Wire article, I wrote that economists often are accused of being indifferent about social problems because they tend to look to reduce harm, as opposed to eliminating it (and risk) altogether. As one who has lived all of my sixty-plus years being part of evangelical circles, I recognize the cognitive dissonance that many evangelicals have when it comes to dealing with issues that have a “right or wrong” component and how to deal with them.
Take the drug war, for example. Most evangelicals I know believe that not only are drugs like heroin or marijuana bad, but that putting them into one’s body is a sinful act. (Evangelicals are more split on consumption of alcohol, and there still runs a strong prohibitionist streak in their ranks.) Thus, in their minds, if something is sinful, then it also should be illegal, and if it is illegal, then laws against taking drugs should be enforced to the maximum. If people refuse to obey the drug laws, evangelical Christians reason, then the state is justified in using maximum force, since drugs are bad, harm people, and their consumption violates the law of God and inflicts harm upon society.
For example, I have an influential Christian friend who believes free markets are good but that drugs are bad. He also believes the biblical admonition that the law “is a teacher,” so if the law says not to take certain drugs, then the law is engaged in biblical teaching and police and the courts need to enforce it. That the drug war itself has caused huge social harm, empowered the police to engage in violent acts, and has wreaked havoc in many communities is irrelevant; drugs are bad, and if people would be more virtuous and not take them, then there would be no police violence.
(I would be remiss to ignore the influence of Laurence Vance, a libertarian evangelical Christian who has been a loud—and often lonely—voice against the drug war, at least in Christian circles. While some have accused Vance of favoring drug use, he clearly draws the line between using drugs and advocating for their prohibition, and any accusation otherwise is false.)
In my recent article, I led off with a Henry Hazlitt quote from Economics in One Lesson that tends to separate economic thinking from the unambiguous views that people often have on many issues, and evangelicals certainly are among those who see much of the world in black and white. Hazlitt wrote:
The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.
Many evangelicals take strong stands not only against the use of drugs, but also see the presence of poverty as a social injustice that needs to be righted. Now. This was not always the case, at least among people who held to the Bible as being inerrant truth. When the major splits in the Presbyterian Church came about in the 1930s, for example, the “liberals” (those who questioned the biblical accounts of Jesus and who doubted the authority of the scriptures) believed that their main focus should be on improving society, and that included helping poor people. However, because private enterprise, with its emphasis upon profitability, in their view was the cause of social and economic inequality, they turned either to socialism or to the welfare state as the “solution” that would most please God (if they actually believed in God).
Ultimately, there was a split between those who followed what Walter Rauschenbusch called the “social gospel” (from his book written in the 1890s), which emphasized secular progressivism (and later social activism) as the true path of Christianity, and those who called themselves Christian fundamentalists and chose to emphasize a spiritual side of Christianity that concentrated upon conversions to the faith. Not surprisingly, the mainstream Protestants who push the social gospel also gravitated toward progressivism and ultimately socialism, while the fundamentalists (and later the evangelicals) stayed mostly out of political and social disputes.
That would change in the early 1970s as a number of evangelicals tied to the Anabaptist movements and InterVarsity Christian Fellowship began to agitate for what they called “social action.” One of the leaders of this movement was an Eastern College history professor, Ronald Sider, who wrote Rich Christians in an Age of Hunger (published by InterVarsity Press [IVP] in 1977), and the book had a major influence in evangelical circles and especially at Christian colleges, where professors quickly adopted it for their classes, and it became the best-selling book in IVP history.
Sider’s book looked at poverty in the world at that time and concluded that the only reason that Third World countries were poor was because North America and Europe were relatively wealthy. These countries were gobbling up the world’s resources unjustly and leaving nothing for the starving masses. Capitalism was the culprit, Sider argued, and while he did not agitate for outright socialism, he did call for a central power in the world to oversee massive wealth transfers, a worldwide welfare state.
(In later editions Sider moderated the strident tone that characterized his 1977 book, but the theme itself is largely untouched, and the narrative—that capitalism creates poverty—remains.)
The book fed well into the evangelical mindset of seeing the world in black-and-white terms. It also provided evangelicals, who were likely to be ridiculed by elites in academe, politics, and the media for their faith, a way to be relevant and to try to earn favor with those same elites for their newfound compassion for the poor. The book itself presented a simple, black-and-white view of wealth and poverty; people who had wealth had stolen from the poor, and there could be no other explanation.
Sider’s central message was that unless Americans, Canadians, and Europeans gave up their wealthy lifestyles and agreed to adhere to a simple life—and stop using so many resources—poverty and starvation would expand throughout the planet and rates of poverty would accelerate. He even prophesied that unless this was done immediately, it would be maybe a decade before Third World countries like India that had nuclear weapons would use them to blackmail the West into giving up their wealth.
We know the rest of the story. The Soviet Union and its satellites collapsed and at least some countries joined the capitalist world. China shed its Mao straightjacket (giving lie to InterVarsity Press’s claim that Mao had performed an economic miracle there) and turned toward a market-based economy, and its poverty rates fell drastically. In fact, poverty around the globe diminished even as the world’s population increased well beyond the limits that environmentalists and doomsayers like Sider had predicted. To put it another way, most if not all of what Sider wrote in 1977 was discredited.
Even as the world became less poor, much of the evangelical world—or at least its academic side—failed to notice. In the mid-1980s, Calvin College (now Calvin University) put out a book, Responsible Technology, which read like a technocratic version of Rich Christians. In the chapter on economics, the authors presented one caricature after another and declared that economists’ tools such as incentives and marginal utility were illegitimate because, well, because people just shouldn’t act that way. As for the basic economic doctrine of scarcity, Calvin’s authors declared that scarcity was a fallacy invented by ignorant free market economists, since everyone knows God has provided the world with lots of wonderful resources.
Even in recent readings of Faith and Economics, the journal published by the Association of Christian Economists, it is like a 1970s time warp in which nothing has changed, with capitalism gobbling up the resources that should go to the poor, and so on. In the view of many Christian theologians, all economic activity is zero-sum, so any gain by one party can come about only because another party is made worse off. The notion of market exchanges making all parties better off simply is rejected out of hand. (I finally gave up in the early 2000s and dropped my membership with absolutely no regrets, nor have I attended any of their annual meetings since then.)
As I noted earlier, a mindset in which poverty is seen solely as a condition brought about by someone else’s wealth is not going to be able to comprehend what actually must happen for a society to grow economically and for the rates of destitution to fall. These things take place over time, and economies grow because entrepreneurs find ways to move resources from lower-valued to higher-valued uses, working within a market system directed by profits and losses. Positive change usually is gradual, and those who believe that people come out of poverty only via wealth transfers are not going to abandon their zero-sum viewpoints.
This hardly is to say that all Christian economists see the economic world in this crabbed sort of way. I know many Christians who are part of the Austrian school, and they have found ways to integrate their faith and their economic thinking. (Economists at Grove City College, for example, are a very wonderful exception to what seems to be the rule.) However, just as many evangelicals cannot conceive that there might be tradeoffs to police violently enforcing the drug war, many Christian economists, theologians, and academics are unable to comprehend even basic concepts of economic thinking and rely, instead, on terms like “stewardship” or “justice,” which without methodologies and foundations are just buzzwords, and then believe that they have “proven” their points by trotting out such words.
Perhaps, the saddest aspect of this ignorance is that these evangelicals have completely ignored the real reductions in poverty rates in the past forty years, reductions that are due to liberalizing economies that once were in socialist straitjackets. Instead, they insist that it still is 1977 and that unless the West immediately transfers vast sums of wealth to Asia, Africa, and South America, billions of people will starve. That isn’t true no longer seems to matter in the current political climate.
During the postcolonial period, most of the African countries which had opted for socialism as their economic system also adopted protectionism as an economic measure to favor certain politically preferred industries. Policymakers wanted to protect domestic industries from foreign competition through tariffs, subsidies, import quotas, or other restrictions or handicaps on the imports of foreign competitors. For example, today Tanzania is one of the top exporters of agricultural commodities in Africa. It mainly exports tobacco ($248.8 million), coffee ($181.6 million), and oilseeds ($230 million). Interestingly, those products are not primarily exported to other African countries. In fact, Switzerland is the main importer of Tanzanian agricultural commodities, purchasing 16.2 percent of Tanzanian agricultural production, and India is the second-largest importer of its goods. But Tanzania does not trade much with its African neighbors. As figure 1 shows, the country only trades with Kenya and South Africa, while the rest of the world is its customer. It has imposed higher tariffs and subsidies when trading with its neighbors but has loosened those same tariffs and subsidies on non-African countries. Despite the good intentions of protectionists, we find that their policies create two substantive conundrums in the economic development of a country.
Figure 1: Tanzania Major Export Destinations (2016)
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Source: Trading Economics. "Other" includes some African countries such as Rwanda and the Democratic Republic of the Congo (DRC), and Uganda, as well as the United States, many other Western countries, and Latin America. Protectionism harms domestic markets. A healthy domestic market relies on the freedom of consumers and entrepreneurs to choose the products they buy, whether for personal consumption or as inputs in their businesses. Protectionist policies limit this ability to choose. Since African protectionist policies are often based on quotas, consumers have very limited choice as to the quantity, quality, and type of products available to them than they would without trade protectionism. Moreover, tariffs and subsidies force a consumer to pay a higher price for a domestic product. Thus, the purchasing power of the African consumer is not as high as that of Western or Asian consumers. When trade protectionist policies are implemented upon domestic products, it compels the consumer to settle for low quality and pay more for a particular product. That is one of the reasons why African consumption is not adequate. Africans are constrained to consumption of lower-quality products that they purchase at a higher price. France, for example, sells its Peugeot automobile to many French-speaking countries, although many consumers consider Peugeots to be low-quality cars. However, because trade restrictions limit access to other choices in automobiles, many Africans end up purchasing these relatively low-quality cars at relatively high prices. This further contributes to the impoverishment of Africans. Protectionism also negatively affects the growth of new industries. In fact, the protection of an infant industry may actually end up costing a government a significant amount of money and financial resources and actually promotes inefficiencies within the new industry, which has no incentive to make efficient, intelligent long-term investments by borrowing funds or issuing common stock in domestic international capital markets.
Protectionism also creates poverty. Indeed, GDP output falls once tariffs rise because of a significant decrease in labor productivity. Income, in addition to being based on the availability of capital, depends on the productivity of labor. But growth in labor productivity requires growth in access to capital. When firms in the import-competing sectors receive protection, resources are reallocated within the economy to relatively unproductive uses. For example, when Kwame Nkrumah was the President of Ghana in the 1960s, he imposed tariffs and subsidies on the major Ghanaian industries. However, the president of the neighboring country Ivory Coast (Côte d'Ivoire) during that same period applied free trade policies to the major industries of the Ivorian economy. As we can observe in figure 2, income per capita significantly differed between Ghana and Ivory Coast. The application of free trade policies improved the living standard of the Ivorian people while the living standard of Ghanaians stagnated. Moreover, protectionism often leads to an increase in unemployment. Countries that close themselves off to foreign competition eventually lose their edge, along with innovation, jobs, and growth. This loss of touch with current world affairs leads to unemployment, and therefore to greater poverty.
Figure 2: Impact of Trade Liberalization on Per Capita Income: Ivory Coast and Ghana, 1960–20[[{"fid":"91179","view_mode":"default","fields":{"format":"default","alignment":"center","field_file_image_alt_text[und][0][value]":"ivory coast ghana free trade","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""},"type":"media","field_deltas":{"2":{"format":"default","alignment":"center","field_file_image_alt_text[und][0][value]":"ivory coast ghana free trade","field_file_image_title_text[und][0][value]":false,"field_caption_text[und][0][value]":"","field_image_file_link[und][0][value]":""}},"attributes":{"alt":"ivory coast ghana free trade","class":"media-element file-default media-wysiwyg-align-center","data-delta":"2"}}]]
Source: World Bank, author’s computation How Free Trade Can Improve African Economies African countries can benefit from free trade by increasing their amount of or access to economic resources. The lowering of trade barriers helps small nations obtain the economic resources they need to produce consumer goods or services. It is here that the comparative advantage theory of David Ricardo becomes more relevant than ever. Ricardo over two centuries ago, in his pathbreaking book Principles of Political Economy and Taxation (1817), argued that comparative advantage exists where local industry can produce a product or service at a lower cost compared to elsewhere. This theory elucidates why a country might produce and export something its citizens don’t seem very skilled at producing when compared directly to the citizens of another wealthier country. The citizens of each country are better off specializing in the goods that they have a comparative advantage producing, even if one country has an absolute advantage in each item.
Over time, free trade will improve the efficiency of production in African economies, because trade enables producers to fill in the gaps in their production processes. That is, entrepreneurs and business owners can make their businesses more productive the more they have access to a full, global range of products and services. The acquisition of knowledge and skills will undeniably contribute to the amelioration of labor productivity and output efficiency. Higher labor productivity and output efficiency will logically reduce unemployment and therefore reduce poverty.
The film Black Panther is one of the most profitable films in recent years, earning revenue in excess of $1.3 billion at the box office. Further, some expect the sequel to do even better. Throughout the world, audiences were captivated by the glamor of Wakanda, a sophisticated African state untouched by colonialism. Symbolically, Wakanda has immense appeal to black people. To many, Wakanda is an embodiment of black achievement in the absence of Western influence. By demonstrating the success of a black country untainted by Europeans, the film affirms the narrative that Western interference daunted the prospects of Africa. Adam Serwer, writing in the Atlantic illustrates the popularity of this presumption: “Black Panther is a love letter to people of African descent…Its actors, its costume design, its music, and countless other facets of the film are drawn from all over the continent and its diaspora, in a science-fiction celebration of the imaginary country of Wakanda, a high-tech utopia that is a fictive manifestation of African potential unfettered by slavery and colonialism.” On an emotional level, it offers people of African descent an opportunity to reimagine their place in the world. The only problem with this is that Black Panther is a dubious counterfactual.
Movies are rarely historically correct; however, Black Panther was created to challenge inaccuracies about black people. Therefore, this film and subsequent adaptations must aim to present a realistic interpretation of history. If we were still living in an era where movies were just seen as entertainment, then there would be no need to discuss the fallacies of Black Panther. Yet unfortunately, several commentators think that we ought to be learning from films based on unreliable assumptions. According to the storyline of Black Panther, Wakanda is an isolated nation whose wealth is due to an extremely powerful metal known as vibranium. To protect its resources from foreign invasions, Wakanda established a cloaking technology to hide the nation from the outside world. But Wakanda is an anomaly as described by Mariama Soy and Amadou Sy in a recent piece: “Because of its self-isolation, Wakanda appears to have an economic model where it does not trade its natural resource with the rest of the world: It lives in autarky and invests heavily in technology.” In real life, Wakanda would be Liberia, not Singapore, because isolated nations are often poor and backward. As one landmark study notes: “Growth can be achieved by all or virtually all countries that follow a reasonable set of political and economic policies, including civil peace, basic adherence to political and civil rights, and an open economy, through the absence of trade quotas, export monopolies, or incontrovertible currencies. All countries that followed such a pattern achieved per capita growth between 1970 and 1989 of two percent per year of greater.”
Contrary to the message of Black Panther, powerful African empires were never isolationist. Aksum, a great African empire in antiquity, for example, was a major trading power. Africans have always entertained contacts with foreigners. To imply that interactions with outsiders may result in the subjugation of Africans is quite insulting. In fact, isolation increases the vulnerability of states if they are attacked, since insular cultures are unlikely to be intellectual superpowers. Economist Thomas Sowell bemoans this reality in a riveting essay: “Small isolated islands in the sea have seldom been sources of new scientific advances or technological breakthroughs – regardless of where such islands were located and regardless of the race of the people on these islands.” Though lauded for portraying a positive image of Africa, Black Panther succeeded in confirming a stereotypical representation of Africans. Despite the technological prowess of Wakanda, the subtext of the film is that irrespective of their achievements, African civilizations are still no match for the West. After all, if Wakanda is the most technologically sophisticated nation in the world, then its leaders should have no reason to fear an invasion.
Another regrettable insinuation perpetuated by the film is the erroneous assertion that poverty in Africa is largely due to the slave trade. This is a much-exaggerated opinion. Scholars have uncovered a negative link between development and the slave trade. Nathan Nunn has written that there is a “robust negative relationship between the number of slaves taken from a country and its subsequent economic development.” Reasonable people accept the implications of the slave trade; however, underdevelopment in Africa is more fundamental than its history of slavery. Countering Nunn, Javier Birchenall recounts the following: “Using Nunn’s estimates we argued that the many slave trades experienced by Africa have large absolute effects on income….In relative terms, however, slavery is still unable to account for most of Africa’s poverty.” Likewise, Margherita Bottero and Björn Wallace also dispute Nunn’s thesis in their 2013 research:
Slavery was until recently widespread across the globe, and today many formerly slave exporting regions are comparatively rich. Thus, there does not seem to exist a deterministic long-run relationship between slave exports and economic performance. We believe that any paper which argues that the slave trade had negative long-run effects on economic performance needs to address these facts, and look beyond Africa.
Similarly, colonialism is frequently adduced as a prominent explanation for poverty in Africa. Evan Narcisse, coauthor of the miniseries Rise of the Black Panther, depicts Wakanda as the manifestation of an “unbroken chain of achievement of black excellence that never got interrupted by colonialism.” His view is quite compatible with leftist thought. Numerous scholars fervently argue that underdevelopment in Africa either stems from extractive institutions imposed by Europeans or from the institutionalization of ethnic discrimination. Such positions do contain a kernel a truth, but as usual, the matter is far more complicated. Newer research is giving great primacy to the role of precolonial institutions in determining Africa’s fortunes. Stelios Michalopoulos and Elias Papaioannou in their 2013 paper “Pre-colonial Ethnic Institutions and Contemporary African Development” enumerate the significance of precolonial arrangements: “Exploiting within-country variation, we show that regional development is significantly higher in the historical homelands of ethnicities with centralized, hierarchical, pre-colonial political institutions.” Moreover, studies further indicate that pre-colonial institutions also influence the quality of governance. Note the observation of Nicola Gennaioli and Ilia Rainer in the aptly titled article “Precolonial Centralization and Institutional Quality in Africa” (2005):
We find that the centralized precolonial political institutions of African ethnic groups reduced corruption and fostered the rule of law in colonial and postcolonial Africa. These results complement our earlier findings that precolonial centralization improved public goods provision in colonial and postcolonial Africa. The data support the view that precolonial institutions are crucial to understanding governmental quality in Africa and former colonies more generally.
On the other hand, equally important is the prominence of geography in impacting Africa’s development. Leading economist Paul Collier in his commanding style explains how geography shapes the prospects of Africa relative to the non- African developing world:
The most striking difference between Africa and other developing regions is in the proportion of the population in landlocked, resource-scarce countries….In the developing world other than Africa some 88% of the population lives in the coastal, resource-scarce countries, around 11% in the resource-rich countries, and a mere 1% in the landlocked, resource-scarce countries. In Africa the population is approximately evenly spread between the three groups. Thus, the African population is heavily skewed towards the globally slow-growing category of landlocked, resource-scarce, and away from the globally fast-growing category of coastal, resource scarce.
Additionally, after quantifying obstacles to growth, Jeffrey Sachs and David Bloom submit that:
Perhaps our most important finding is economic policy and governance, which receive the largest share of economists’ attention, are perhaps not the dominant factors impeding economic growth in Africa. Rather, we find that various aspects of tropical geography, demography, and public health are vitally important….Our statistical estimates…actually give about two-thirds of the weight of Africa’s growth to such “noneconomic” conditions and only one-third to economic policy and institutions.
Black Panther without a doubt is an amazing work of art. However, this film is no substitute for actual history. If the point of producing it was to contest racist narratives about Africans or non-Westerners, then the film failed. The evidence suggests that African countries are successful when they enable trade and collaborate with foreign partners. Therefore, the glorification of isolationism is counter to its supposedly uplifting message of black empowerment. In addition, though films may provide compelling counterfactuals, the analysis of history furnished by Black Panther is astoundingly inept and unbalanced. There are more foundational variables to be examined when seeking to assess the relative poverty of Africa than the slave trade and colonialism. Black Panther is an interesting film, but do not treat it like history or an alternative hypothesis.
United States jobless claims have picked up, since the elections and the second wave of coronavirus have slowed down the economic recovery. Uncertainty about tax increases and changes in labor laws, including an increase in the minimum wage, add to the fear of new lockdowns, as employers see the devastating effects of these lockdowns in European employment.
While the United States has been able to recover fast and reduce unemployment to 6.8 percent, the eurozone jobless rate has risen to 8.3 percent before we consider the large number of furloughed employees who remain idle. The second wave of coronavirus in Europe has seen new government-imposed lockdowns and the impact on the economy is already severe. Estimates for the fourth-quarter gross domestic product assume a double-dip recession and another increase in unemployment.
Misguided lockdowns have created a deep and long-lasting impact on the economy and a dramatic social crisis, proving again that the response to the pandemic should have been similar that of Asian countries, which have successfully preserved health and the economy.
Employers all over the United States fear that a Biden administration will impose lockdowns, following the example of some European countries and thus generating a new decline in the economy and a wave of bankruptcies and job losses. Instead of giving simple and effective protocols for business to endure the crisis, some governments, whose members are completely disconnected from the day-to-day problems of small businesses and employers, resort to the drastic and ineffective measure of lockdowns, because it gives more power to governments and because the large corporations do not feel the impact as much as small enterprises. Governments like the idea of lockdowns, because it gives the impression of taking drastic measures to control the pandemic when, in reality, lockdowns simply destroy the business fabric and have proven to be extremely ineffective at reducing the mortality or hospitalization rates. The concerns about a Biden-enforced nationwide lockdown are not exaggerated. Dr. Michael Osterholm, a coronavirus advisor to Joe Biden, said a nationwide lockdown of four to six weeks would help bring the virus under control in the US and revive the economy. I am sorry to say that experience has shown us that none of those two things will happen. Massive lockdowns did not help European countries control the virus, rather the opposite, and have destroyed the economy with long-lasting implications for jobs, bankruptcies, and wages. Meanwhile, countries that have not implemented lockdowns and have provided simple and effective protocols have achieved better results in health and the economy.
Many citizens in the United States ask themselves if the country will recover its record level of employment and its low unemployment rate of 3.5 percent seen in March 2020, before the pandemic. Even if the United States avoids government-imposed lockdowns, which would delay the job recovery for at least another eighteen months, there is grave concern about the likelihood of more regulation, union control, and higher taxes that will make it more expensive to hire personnel and more burdensome both in terms of hiring as well as reducing payroll.
The United States has been an example of job creation during the growth period but, more importantly, rapid job recovery in a complex crisis like the covid-19 one. Adding rigidity to the labor market and increasing taxes will prove disastrous for small and newly created business, which are the largest job creators in the United States.
It is as simple as this. The United States cannot have the wage growth and low unemployment it deserves by copying the labor market legislation of Greece, Spain, or France, countries with extremely rigid job markets and high union intervention…and historically high unemployment.
The European Union used to have the same unemployment rate as the United States. Massive disincentives, a misguided excess of regulation, and heavy taxes have created a divergence by which unemployment in Europe stands at almost twice the rate as in the United States.
The fallacy of “protecting workers” with high taxes to employers and heavy intervention in the labor market only protects governments. Unemployment is higher, wage growth is weaker, and the flexibility loss means lower opportunities for youth employment. Youth unemployment in the eurozone and European Union is simply unacceptably high even in growth periods, and it is due to the barriers to employment created through aggressive intervention in the job market and government control. Incentives to hire are poor while disincentives to work are high.
If anything has been proven by the past two decades, it is that more government, higher taxes, and union intervention do not protect workers, they perpetuate unemployment and reduce wage growth and opportunities.
Lockdowns added to higher taxes and labor rigidity would likely prove very negative for the United States recovery. You cannot recover if you impose the burdens that some European countries have imposed. Labor market interventionism does not protect workers, it empowers politicians.
Last week cable channel HBO premiered the documentary Breslin and Hamill: Deadline Artists. Regardless of one’s politics, it’s a very interesting and entertaining look into print media's grand past, and at two of the greats (Pete Hamill and the late Jimmy Breslin) when it came to columns that gave readers the impression they were walking the streets alongside these most street-smart of writers.
Breslin in particular liked to bring his readers very close to major news stories, and did just that during the Crown Heights (Brooklyn) riots of 1991. The three days of tumult and violence took place in the aftermath of a tragic car crash in which a car driven by an Orthodox Jewish driver struck and killed a 7-year old black child while seriously injuring his cousin. Breslin, being Breslin, took a cab right into the middle of the rioting. His subsequent column referenced the impoverishment of the black Crown Heights residents who surrounded the car he was in, and how they desperately needed “money.”
“Money” is placed in quotes simply because Breslin missed the point. No one wants “money” as much as they want what money can be exchanged for. Money can’t be eaten; rather credible money can be exchanged for goods and services. What Breslin really meant is that rioters in Crown Heights citizens desired goods and services not commensurate with the dollars in their pockets.
Which brings us to a recent Washington Post opinion piece by columnist Catherine Rampell. Not surprisingly, Rampell thinks Elizabeth Warren’s wealth-tax plan is a fine idea, and that it “could correct past mistakes.” That Rampell is unwittingly arguing with herself in her desire to penalize the rich will soon become apparent, but for now it’s worth addressing a few basic falsehoods promoted by an economics columnist who lacks a feel for her specialty.
Up front, Rampell asserts that “Over several decades, U.S. policies have facilitated a systemic upward redistribution of wealth.” Oh dear no, that’s so untrue. Wealth is a function of investment, and the capital gains tax that penalizes investment has risen from 15% earlier in the 21st century to 23.8% when we factor in the Affordable Care Act surcharge. No doubt the capital gains tax is lower than what prevailed in the slow-growth 1970s, but it’s hardly been declining modernly as Rampell's column suggests. To be fair, the tax should be zero. There are quite simply no companies and no jobs without investment first, so in a reasonably sane world no one would be charged for putting wealth to work.
So while Rampell is incorrect about the direction of policy, she also misses the whybehind the wealth surge. The latter is plainly an effect of technological advances that Rampell would likely be very frustrated if forced to live without. Simply stated, the internet and other leaps that have figuratively shrunk the world have made it possible for geniuses like Jeff Bezos to meet the needs of exponentially more people around the world. Thanks to the internet, wealth wasn’t “redistributed upward” as much as it was created by brilliant minds touching more and more of the world with their unparalleled ability to serve. Assuming Rampell really wants to shrink a rising wealth gap, a gap that plainly signals a massive reduction in the lifestyle gap between the rich and poor, her columns would be most effective if she made them about abolishing the internet.
Unaware of what she's actually proposing, Rampell naively aims to put a halo around her own head in her calls to neuter the rich. Implicit in her desire to harm a whole class of people is that in pushing down those with means, she’d like to lift those without. In calling for a forced transfer of money from the haves to the have nots, Rampell is less artfully committing the same error that Breslin did nearly 30 years ago: she presumes that “money” is what the poor need. No, the poor need what money can be exchanged for; the more the better.
Crucial here is that the rich become rich precisely because they mass produce former luxuries. In their failure to understand this truth, this is where Rampell and the wealth redistribution crowd shrink to arguing with themselves. While expressing a desire to essentially geld those who’ve created wealth, they’re unwittingly seeking to penalize those who’ve gotten rich through their transformation of scarce goods enjoyed by the few into common goods enjoyed by everyone. Goodness, in 1991 a computer that we'd all arrogantly turn our noses up to today cost $10,000, the most primitive of mobile phones retailed in the thousands such that they could generally only be found in Beverly Hills, Manhattan or the Hamptons, and then a simple 30 minute phone call (on a landline no less) from Baltimore to Washington, D.C. set the common man back $10 to $20. Rampell believes the poor want “money,” but like us all, they want things. The rich get rich by virtue of democratizing access to “things.”
Useful about the above is that today’s newly rich required investment to vivify in the literal sense their desire to democratize access to what the rich used to solely enjoy. This is where inheritors of wealth come in. Unless they’re stuffing the wealth passed on to them under mattresses, they’re investing it. Get it? For Rampell to cheer wealth taxes is for her to cheer the shrinking of the capital that’s necessary for entrepreneurs to turn ideas into real, living standard advances.
Rampell wants the poor to have more money, but money’s only useful insofar as it’s exchangeable for the goods and services that we all really want. The rich get rich by virtue of making what's dear rather cheap, thus helping the poor the most. Inequality is poverty’s greatest enemy. Rampell seeks to neuter the unequal. She’s arguing with herself.
Originally published at Real Clear Markets
In his bid for the presidency, Pete Buttigieg rhetorically grabs a tiger by the tail, so to speak. Not the Siberian tiger still clutched by Russia, but an American mountain lion.
The tails in both instances are vestiges of towns and cities far from viable markets, a situation that leaves those remaining with little hope for economic expansion. These lives of despair are encouraged by government policies purporting to revitalize rural areas whose futures have long since passed. So, instead of migrating to areas with remunerative prospects, folks remain.
The book The Siberian Curse: How Communist Planners Left Russia in the Cold details the failure of centralized planners to encourage economic growth in the hinterlands east of the Urals. For years, Russia has been trying to settle the wilds of its frozen tundra. First, the tsars encouraged population movement, then the Soviets commanded it. The result today is cities crumbling in Siberia, far removed from population centers and markets.
As these cities age, Russia is burdened by their very existence. A solution under a system of interventionism does not exist. And a semiauthoritarian government cannot simply let its masses exit the tundra and find their own productive places to live and work, places likely within the already burdened population centers of Moscow, etc.
We look at such a system—centrally planned cities that are inefficient and unprofitable, far removed from centers of commerce—as vestiges of the Evil Empire. Yet, the US does the very same thing, despite Ludwig von Mises's clear refutation of the ability of central planners to achieve anything greater than a sustained descent toward general starvation.
Russia suffers due to the cost of supporting the residents of cities that are not efficiently located. At the same time, the US suffers due to similar redistributive measures supporting residents in regions that no longer provide jobs. In both cases, residents remain in areas that are unproductive while the rest of their respective nations suffer due to the redistribution of wealth from economically productive regions to economically unproductive ones.
In the face of this, Buttigieg has proposed a plan to repopulate declining rural areas with immigrants, stating,
I'm proposing what we call "Community Renewal Visas" that when a community that is very much in need of growing its population, recognizes that, and makes a choice to welcome more than its share of new Americans that we create a fast-track, if they apply for an allotment of visas, that goes to those who are willing to be in those areas that maybe are hurting for population but have great potential.
Who will recognize potential (great or small) in a struggling area? Acting men and women? Entrepreneurs seeking to satisfy consumer desires? No. Potential will be defined politically, just as in Russia and the former Soviet Union.
And when populations in depressed areas are propped up for political reasons, more taxpayers dollars are likely to follow. Areas designated as impoverished by government already receive federal dollars. For the local politicians, federal largess is a cash cow. Federal appropriations include dollars earmarked for rural poverty assistance, road and infrastructure improvements, new and revitalized schools, etc. Whether it's the smooth asphalt on roads that have little residential or commercial traffic or war on poverty–type programs such as federal support for education, politicians—local, state, and federal—benefit at the polls by being the providers of this pork.
However, struggling rural areas are impoverished because high-paying jobs do not exist there. So, instead of having acting individuals move to areas of economic prosperity, the feds attempt to chain rural residents to areas where the golden years are long gone.
You hear the politicians claim that the infrastructure needs to be improved and then jobs will follow. And now Buttigieg wants additional residents, claiming that renewal will follow. This is similar to the pronouncements coming from the Soviet planners of yore. Both claims are fallacious and without merit. Building a new school and paving additional roads in declining rural regions will not encourage businesses to relocate any more than doing the same in Siberia resulted in long-term, sustainable enterprises, nor will adding citizens to an area that has no need for them.
Business owners—entrepreneurs—are not fooled by the plaintive tales spun by the vote-hungry class. Businesses locate in the areas that their owners deem most profitable. The lure of paved roads, new schools, government support programs, and additional unemployed workers are not enough to counteract (say) the physical distance to market.
Of course, by adding more residents (future citizens and voters) to these regions the government will lock even more voters in to lives of tax dependency. Federal dollars will be spent by local and state politicians in a manner not too different from that of the Soviet planners; local infrastructure will be increased where it is not needed, and fruitless support programs will be created or expanded.
Sure, in the short run, some rural residents will benefit by being employed in these governmental works projects. But these very same residents will be unemployed once the projects or programs lose federal funding. The cycle of poverty will continue.
As harsh as it sounds, the only way to improve the lives of the residents of struggling rural regions is to remove government support. Let these folks face the true cost of their decisions. Some will accept reduced lifestyles and remain to enjoy the natural features of these still wild regions, while others will migrate to areas where they can attain higher-paying jobs. Either way, acting individuals will demonstrate their preferences within a market environment. And US taxpayers will not have to continue funding what has become America's Siberia.
Samuel Scheffler is one of the most prominent contemporary moral and political philosophers. He is especially well known for his ability to come up with arguments and counterarguments to any position. He is also a committed egalitarian. In a recent column that appeared in the New York Times, Scheffler responds to an argument against equality of wealth, income, and other desirable social goods. He recognizes the strength of the argument and tries to show that it doesn’t undermine the case for equality. I don’t think he succeeds. His defense of equality will convince only those already committed to this view.
The argument he’s trying to answer was raised by another famous philosopher, Harry Frankfurt, in an essay that appeared in 1987. It is an argument that most people who read Mises Institute articles will know already. In brief, the argument is that what matters to someone is how well he himself is doing. So long as a person has enough to lead a satisfying life, why should it matter whether there are other people who have more?
Scheffler states Frankfurt’s argument in this way:
It does not matter whether some people have less than others. What matters is that some people do not have enough. They lack adequate income, have little or no wealth and do not enjoy decent housing, health care or education. If even the worst-off people had enough resources to lead good and fulfilling lives, then the fact that others had still greater resources would not be troubling. When some people don’t have enough and others have vastly more than they need, it is easy to conclude that the problem is one of inequality. But this, according to Professor Frankfurt, is a mistake. The problem isn’t inequality as such. It’s the poverty and deprivation suffered by those who have least.
I must here avert a possible misunderstanding. Frankfurt is by no means a supporter of the free market. He is in most respects a standard welfare-state liberal. But he denies that equality is good for its own sake. When Frankfurt reiterated his contention in a short book that appeared in 2015, he became the object of severe attack. Colleagues shunned this once revered figure.
As Scheffler realizes, if you deny Frankfurt’s claim and maintain that equality has value in itself, you must confront an objection.
And Professor Frankfurt, it seems, has a point. Those in the top 10 percent of America’s economic distribution are in a very comfortable position. Those in the top 1 percent are in an even more comfortable position than those in the other 9 percent. But few people find this kind of inequality troubling. Inequality bothers us most, it seems, only when some are very rich and others are very poor.
Even when the worst-off people are very poor, moreover, it wouldn’t be an improvement to reduce everyone else to their level. Equality would then prevail, but equal misery is hardly an ideal worth striving for.
How does Scheffler answer this point? After making a few suggestions that aim to show that egalitarian measures are instrumentally good, he says:
This brings us to a more fundamental point. The great political philosopher John Rawls thought that a liberal society should conceive of itself as a fair system of cooperation among free and equal people. Often, it seems, we do like to think of ourselves that way. We know that our society has always been blighted by grave injustices, beginning with the great moral catastrophe of slavery, but we aspire to create a society of equals, and we are proud of the steps we have taken toward that ideal.
But extreme inequality makes a mockery of our aspiration. In a society marked by the spectacular inequalities of income and wealth that have emerged in the United States in the past few decades, there is no meaningful sense in which all citizens, rich and poor alike, can nevertheless relate to one another on an equal footing….If extreme economic inequality undermines the ideal of a society of equals, then is that merely one of its bad effects, like its corrupting influence on the political process? Or, instead, is that simply what it is for economic inequality to matter as such?
I don’t think this argument achieves very much. Of course, people cannot regard themselves as a society of equals in the sense that Rawls and Scheffler favor if the society allows “extreme” inequalities. But unless you already regard equality as a good in itself, why should the notion of a society of equals appeal to you? Invoking this ideal doesn’t help the case for equality.
Scheffler might respond in two ways. He might say that if we do accept the value of equality, we will also see that there is a good related to it, that of a society of equals, which has independent value. In that way, we get “two goods for the price of one.” He might also say that someone could first find the notion of a society of equals valuable and in that way come to accept the value of equality.
I don’t think either of these responses gets the egalitarian very far. The fact that a philosopher as skilled as Scheffler fails to come up with anything better should lead us to suspect that there isn’t much of a case for equality. It doesn’t amount to more than “You must believe in equality—because you must!”
Socialists have attempted many times to put their ideology into action. Socialism has been applied in the Soviet Union, Cuba, China (before Deng), North Korea, and by many other less-famous regimes.
In each case, the result has been economic impoverishment and political authoritarianism.
But the die-hard socialists refuse to give up. "Don't judge communism based on these results, " we're told. "Socialism has simply never really been tried."
Socialism Doesn't Work Unless It's Pure Socialism Indeed, in a recent back-and-forth between John Stossel and Noam Chomsky, Chomsky denied that the Venezuelan regime is socialist at all:
I never described Chavez's state capitalist government as 'socialist' or even hinted at such an absurdity. It was quite remote from socialism. Private capitalism remained ... Capitalists were free to undermine the economy in all sorts of ways, like massive export of capital.
The thinking goes that socialism cannot work unless it progresses all the way to "full socialism." No partial effort will suffice, we are told, and socialism keeps failing because the some elements of "private capitalism" remained.
So long as any aspect of a state is not full-on socialism, the thinking goes, then the regime is not really socialist. Moreover, the failure of the regime's socialist policies — such as expropriation of private companies and expansion of government-owned industries — are to be blamed on capitalism, not socialism.
RELATED: "Why the Left Refuses to Talk About Venezuela" by Ryan McMaken
Naturally, were socialism able to achieve it's final state — and all elements of capitalism expunged — we'd know it by its ushering in of a society marked by unparalleled prosperity and total equality.
Nevermind that for all intents and purposes, Lenin did achieve nearly complete and total nationalization of the economy during the Russian Civil War in 1922. The people began to starve soon after, and Lenin retreated to the partial socialism under his so-called "New Economic Policy."
The Lenin example is steadfastly ignored, of course, and we're repeatedly told by the likes of Chomsky that mere half measures don't work for socialism, and only total socialism works. Anything short of total socialism, it seems, will fail miserably, as it has in Venezuela. Yes, the government can seize many factories, shops, and even whole industries, as has happened in Venezuela. But, unless the state seizes every single shop, then it's not real socialism. Thus, don't blame socialism when the whole thing crashes down.
The Same Logic Need Not Be Applied to Laissez-Faire Liberalism Note, however, that this isn't a problem in the opposite direction. If we take a middle-of-the road interventionist economy and start introducing partial, half-way free-market liberal reforms, does this cause the economy to collapse?
Certainly not. Indeed, everywhere we look and find a relatively less socialistic economy, the less poverty and more prosperity we find.
RELATED: "Extreme Poverty Worldwide Has Plummeted as Market Economics Has Spread" by Ryan McMaken
Historically, this is obvious. The countries that embraced free trade, industrialization, and the trappings of market economies early on are the wealthiest economies today. We also find this to be the case in post-war Europe where the relatively pro-market economies such as those in Germany and the UK are wealthier and have higher standards of living than the more socialistic economies of southern Europe — such as Greece and Spain. This is even true of the Scandinavian countries like Sweden, which, as Per Bylund has noted, historically built its wealth with a relatively laissez-faire regime.The Danish Prime Minister agrees, noting in 2015: "I know that some people in the US associate the Nordic model with some sort of socialism. Therefore I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy." Compared to the economies of southern and eastern Europe, he's right.
This is all the more true when we compare Western Europe with Eastern Europe.
In none of these cases is any economy totally free-market (or even nearly so) or totally socialistic. What we do find, however, is that in countries where the economy leans more in the direction of markets — the standard of living is higher, there is less inequality, and poverty is less awful in general.
This is also true in Asia. South Korea and Japan are by no means free-market economies. Both countries' economies are characterized by a wide variety of trade restrictions, crony capitalist deals, and a massive regulatory state.
But North Korea and Vietnam, which are much poorer, are characterized by far more government ownership of industry, and much smaller private sectors than is the case in Japan and South Korea.
And yet, by the logic of the socialists, the problem with North Korea and Vietnam is that they don't have enough socialism. If those countries could only rid themselves of the capitalists who are "free to undermine the economy" then North Korea will finally be prosperous and Vietnam will rival Japan in its productivity and wealth.
This is nonsense, of course. If North Korea wants fewer famines it need only move in the direction of less socialism as South Korea has.
Even Halfway Reforms Work with Markets Unlike socialism, market reforms need not be total, complete, or utopian in order for their benefits to be recognized.
This is why market advocates never need to say "market reforms didn't work in Country X because that country never achieved full and true capitalism! If only all the socialists been liquidated, then true capitalism would have been realized!"
This is never said said because even half-measures in the direction of laissez faire improve economic growth and standards of living.
We saw this in West Germany after World War II with the reforms of Ludwig Erhard, who helped usher in a period of immense economic growth with only half-way reforms. By abolishing price controls and other government-imposed restraints on the economy, the Germany economy took off while more socialistic economies — like that found in the UK at the time — were more stagnant. "If only East Germany had had more socialism!" we can only conclude. Then East Germans wouldn't have risked death trying to escape to West Germany.
Obviously, in this case, the West German state did not adopt "pure" capitalism. They merely adopted relatively more laissez-faire. And the economy expanded. In fact, according to Hans Sennholz, the West German state rather accidentally stumbled upon its free market reforms. And yet, we call the results "the German economic miracle."
Another modern example is Latin America. When we look across the region as a whole, we find repeatedly that the regimes that have embraced even half-hearted pro-market reforms — such as Chile, Peru, and Colombia — are the countries that have seen some of the greatest economic growth in recent decades.
Meanwhile, those countries that have most enthusiastically embraced the so-called pro-socialist "Pink Tide" have seen some of the worst growth rates:
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But what is the excuse for the lack of economic growth in Argentina, Brazil, and Venezuela? All those countries have in recent decades embraced economic populism — namely, more government ownership, more government regulation, and more government control of the economy.
So why haven't those countries outpaced the more market-oriented Latin American states? According to the logic of the socialists, the problem is that none of these states has embraced total socialism.
What a blessing for the socialists, then, that every time some socialist reforms are tried — and fail — the ideology has a built-in excuse: socialism never works unless it's fully implemented.
Just imagine if the same were true of markets, though. Since no ideology is ever likely to be fully realized in its entirety, this would mean that humanity would be doomed to abject and grinding poverty forever.
Fortunately for us, market reforms need only be partial and haphazard to make us all better off. Unfortunately, governments are often committed to moving in the wrong direction with central banks, wage controls, price controls, more regulation and more taxation. The assaults on markets are continuous and widespread. Fortunately, all it takes is movement back in the direction of freer markets to improve matters again. We'd do well to learn from Eastern Europe, West Germany, Latin America, and all the other regimes that have, reluctantly or not, gotten out of the way and allowed markets to work.
The socialists can keep dreaming about their paradise to be realized some day when total unadulterated socialism is achieved. Meanwhile, markets will continue to improve matters for billions of people in real life.
[This article is excerpted from chapter 21 of Human Action.]
The life of primitive man was an unceasing struggle against the scantiness of the nature-given means for his sustenance. In this desperate effort to secure bare survival, many individuals and whole families, tribes, and races succumbed. Primitive man was always haunted by the specter of death from starvation. Civilization has freed us from these perils. Human life is menaced day and night by innumerable dangers; it can be destroyed at any instant by natural forces which are beyond control or at least cannot be controlled at the present stage of our knowledge and our potentialities. But the horror of starvation no longer terrifies people living in a capitalist society. He who is able to work earns much more than is needed for bare sustenance.
There are also, of course, disabled people who are incapable of work. Then there are invalids who can perform a small quantity of work; but their disability prevents them from earning as much as normal workers do; sometimes the wage rates they could earn are so low that they could not maintain themselves. These people can keep body and soul together only if other people help them. The next of kin, friends, the charity of benefactors and endowments, and communal poor relief take care of the destitute.
Alms folk do not cooperate in the social process of production; as far as the provision of the means for the satisfaction of wants is concerned, they do not act; they live because other people look after them. The problems of poor relief are problems of the arrangement of consumption, not of the arrangement of production activities. They are as such beyond the frame of a theory of human action that refers only to the provision of the means required for consumption, not to the way in which these means are consumed. Catallactic theory deals with the methods adopted for the charitable support of the destitute only as far as they can possibly affect the supply of labor. It has sometimes happened that the policies applied in poor relief have encouraged unwillingness to work and the idleness of able-bodied adults.
In the capitalist society there prevails a tendency toward a steady increase in the per capita quota of capital invested. The accumulation of capital soars above the increase in population figures. Consequently the marginal productivity of labor, wage rates, and the wage earners' standard of living tend to rise continually. But this improvement in well-being is not the manifestation of the operation of an inevitable law of human evolution; it is a tendency resulting from the interplay of forces that can freely produce their effects only under capitalism.
It is possible and, if we take into account the direction of present-day policies, even not unlikely that capital consumption on the one hand and an increase or an insufficient drop in population figures on the other hand will reverse things. Then it could happen that men will again learn literally what starvation means and that the relation of the quantity of capital goods available and population figures will become so unfavorable as to make part of the workers earn less than a bare subsistence. The mere approach to such conditions would certainly cause irreconcilable dissensions within society, conflicts the violence of which must result in a complete disintegration of all societal bonds. The social division of labor cannot be preserved if part of the cooperating members of society are doomed to earn less than a bare subsistence.
The notion of a physiological minimum of subsistence to which the "iron law of wages" refers and which demagogues put forward again and again is of no use for a catallactic theory of the determination of wage rates. One of the foundations upon which social cooperation rests is the fact that labor performed according to the principle of the division of labor is so much more productive than the efforts of isolated individuals that able-bodied people are not troubled by the fear of starvation that daily threatened their forebears. Within a capitalist commonwealth the minimum of subsistence plays no catallactic role.
Furthermore, the notion of a physiological minimum of subsistence lacks that precision and scientific rigor that people have ascribed to it. Primitive man, adjusted to a more animal-like than human existence, could keep himself alive under conditions that are literally unbearable to his dainty scions pampered by capitalism. There is no such thing as a physiologically and biologically determined minimum of subsistence, valid for every specimen of the zoological species homo sapiens. No more tenable is the idea that a definite quantity of calories is needed to keep a man healthy and progenitive, and a further definite quantity to replace the energy expended in working.
The appeal to such notions of cattle breeding and the vivisection of guinea pigs does not aid the economist in his endeavors to comprehend the problems of purposive human action. The "iron law of wages" and the essentially identical Marxian doctrine of the determination of "the value of labor power" by "the working time necessary for its production, consequently also for its reproduction,"Cf. Marx, Das Kapital (7th ed. Hamburg, 1914), I, 133. In the Communist Manifesto (Section II) Marx and Engels formulate their doctrine in this way: "The average price of wage labor is the minimum wage, i.e., that quantum of means of subsistence which is absolutely required to keep the laborer in bare existence as laborer." It "merely suffices to prolong and reproduce a bare existence." are the least tenable of all that has ever been taught in the field of catallactics.
Yet it was possible to attach some meaning to the ideas implied in the iron law of wages. If one sees in the wage earner merely a chattel and believes that he plays no other role in society, if one assumes that he aims at no other satisfaction then feeding and proliferation and does not know of any employment for his earnings other than the procurement of those animal satisfactions, one may consider the iron law as a theory of the determination of wage rates.
In fact the classical economists, frustrated by their abortive value theory, could not think of any other solution of the problem involved. For Torrens and Ricardo, the theorem that the natural price of labor is the price that enables the wage earners to subsist and to perpetuate their race without any increase or diminution was the logically inescapable inference from their untenable value theory.
But when their epigones saw that they could no longer satisfy themselves with this manifestly preposterous law, they resorted to a modification of it that was tantamount to a complete abandonment of any attempt to provide an economic explanation of the determination of wage rates. They tried to preserve the cherished notion of the minimum of subsistence by substituting the concept of a "social" minimum for the concept of a physiological minimum. They no longer spoke of the minimum required for the necessary subsistence of the laborer and for the preservation of an undiminished supply of labor; they spoke instead of the minimum required for the preservation of a standard of living sanctified by historical tradition and inherited customs and habits.
While daily experience taught impressively that, under capitalism, real wage rates and the wage earners' standard of living were steadily rising, while it became from day to day more obvious that the traditional walls separating the various strata of the population could no longer be preserved, because the social improvement in the conditions of the industrial workers demolished the vested ideas of social rank and dignity, these doctrinaires announced that old customs and social convention determine the height of wage rates. Only people blinded by preconceived prejudices and party bias could resort to such an explanation in an age in which industry supplies the consumption of the masses again and again with new commodities hitherto unknown and makes accessible to the average worker satisfactions of which no king could dream in the past.
It is not especially remarkable that the Prussian Historical School of the wirtschaftliche Staatswissenschaften viewed wage rates no less than commodity prices and interest rates as "historical categories" and that in dealing with wage rates it had recourse to the concept of "income adequate to the individual's hierarchical station in the social scale of ranks." It was the essence of the teachings of this school to deny the existence of economics and to substitute history for it.
But it is amazing that Marx and the Marxians did not recognize that their endorsement of this spurious doctrine entirely disintegrated the body of the so-called Marxian system of economics. When the articles and dissertations published in England in the early 1860s convinced Marx that it was no longer permissible to cling unswervingly to the wage theory of the classical economists, he modified his theory of the value of labor power. He declared that "the extent of the so-called natural wants and the manner in which they are satisfied, are in themselves a product of historical evolution" and "depend to a large extent on the degree of civilization attained by any given country and, among other factors, especially on the conditions and customs and pretensions concerning the standard of life under which the class of free laborers has been formed."
Thus "a historical and moral element enter into the determination of the value of labor power." But when Marx adds that nonetheless "for a given country at any given time, the average quantity of indispensable necessaries of life is a given fact,"Cf. Marx, Das Kapital, p. 134. Italics are mine. The term used by Marx which in the text is translated as "necessaries of life" is "Lebensmittel." The Muret-Sanders Dictionary (16th ed.) translates this term "articles of food, provisions, victuals, grub." he contradicts himself and misleads the reader. What he has in mind is no longer the "indispensable necessaries," but the things considered indispensable from a traditional point of view, the means necessary for the preservation of a standard of living adequate to the workers' station in the traditional social hierarchy. The recourse to such an explanation means virtually the renunciation of any economic or catallactic elucidation of the determination of wage rates. Wage rates are explained as a datum of history. They are no longer seen as a market phenomenon, but as a factor originating outside of the interplay of the forces operating on the market.
However, even those who believe that the height of wage rates as they are actually paid and received in reality are forced upon the market from without as a datum cannot avoid developing a theory that explains the determination of wage rates as the outcome of the valuations and decisions of the consumers. Without such a catallactic theory of wages, no economic analysis of the market can be complete and logically satisfactory. It is simply nonsensical to restrict the catallactic disquisitions to the problems of the determination of commodity prices and interest rates and to accept wage rates as a historical datum. An economic theory worthy of the name must be in a position to assert with regard to wage rates more than that they are determined by a "historical and moral element." The characteristic mark of economics is that it explains the exchange ratios manifested in market transactions as market phenomena the determination of which is subject to a regularity in the concatenation and sequence of events. It is precisely this that distinguishes economic conception from the historical understanding, theory from history.
We can well imagine a historical situation in which the height of wage rates is forced upon the market by the interference of external compulsion and coercion. Such institutional fixing of wage rates is one of the most important features of our age of interventionist policies. But with regard to such a state of affairs it is the task of economics to investigate what effects are brought about by the disparity between the two wage rates, the potential rate that the unhampered market would have produced by the interplay of the supply of and the demand for labor on the one hand, and on the other the rate that external compulsion and coercion impose upon the parties to the market transactions.
It is true, wage earners are imbued with the idea that wages must be at least high enough to enable them to maintain a standard of living adequate to their station in the hierarchical gradation of society. Every single worker has his particular opinion about the claims he is entitled to raise on account of "status," "rank," "tradition," and "custom" in the same way as he has his particular opinion about his own efficiency and his own achievements. But such pretensions and self-complacent assumptions are without any relevance for the determination of wage rates. They limit neither the upward nor the downward movement of wage rates.
The wage earner must sometimes satisfy himself with much less than what, according to his opinion, is adequate to his rank and efficiency. If he is offered more than he expected, he pockets the surplus without a qualm. The age of laissez-faire for which the iron law and Marx's doctrine of the historically determined formation of wage rates claim validity witnessed a progressive, although sometimes temporarily interrupted, tendency for real wage rates to rise. The wage earners' standard of living rose to a height unprecedented in history and never thought of in earlier periods.
The labor unions pretend that nominal wage rates at least must always be raised in accordance with the changes occurring in the monetary unit's purchasing power in such a way as to secure to the wage earner the unabated enjoyment of the previous standard of living. They raise these claims also with regard to wartime conditions and the measures adopted for the financing of war expenditure. In their opinion even in wartime neither inflation nor the withholding of income taxes must affect the worker's take-home real wage rates. This doctrine tacitly implies the thesis of the Communist Manifesto that "the working men have no country" and have "nothing to lose but their chains"; consequently they are neutral in the wars waged by the bourgeois exploiters and do not care whether their nation conquers or is conquered. It is not the task of economics to scrutinize these statements. It only has to establish the fact that it does not matter what kind of justification is advanced in favor of the enforcement of wage rates higher than those the unhampered labor market would have determined. If as a result of such claims real wage rates are really raised above the height consonant with the marginal productivity of the various types of labor concerned, the unavoidable consequences must appear without any regard to the underlying philosophy.
The same is valid with regard to the confused doctrine that wage earners are entitled to claim for themselves all the benefits derived from improvements in what union officers call the productivity of labor. On the unhampered labor market wage rates always tend toward the point at which they coincide with the marginal productivity of labor. The concept of the productivity of labor in general is no less empty than all other universal concepts of this kind, e.g., the concept of the value of iron or gold in general. To speak of the productivity of labor in a sense other than that of the marginal productivity is meaningless. What these union officers have in mind is an ethical justification of their policies. However, the economic consequences of these policies are not affected by the pretexts advanced in their favor.
Wage rates are ultimately determined by the value the wage earner's fellow citizens attach to his services and achievements. Labor is appraised like a commodity not because the entrepreneurs and capitalists are hardhearted and callous but because they are unconditionally subject to the supremacy of the pitiless consumers. The consumers are not prepared to satisfy anybody's pretensions, presumptions, and self-conceit. They want to be served in the cheapest way.
Throughout history, the state has justified itself on the grounds that it is necessary to protect us from others whose habits and beliefs — we are meant to believe — are dangerous. For millennia, this fiction was easy to maintain because most people interacted so little with people outside their nearly autarkic — and therefore impoverished — communities.
But, with the rise of industrialization and international trade in recent centuries, the state's claim that it is necessary to keep us “safe” from outsiders has become increasingly undermined.
Much of this is thanks to the fact that in order to benefit from the market, one must engage in activities designed to serve others and anticipate their needs. As a result, trade increases our understanding for both members of our community and even the stranger; it also makes us realize that other people are much like us. Even if they speak strange languages or have odd customs and traditions.
The Market Order and CivilizationThis is in essence Say’s Law, or the Law of Markets, which states that in the market we produce in order to trade with others so that we can thereby, indirectly, satisfy our own wants: our demand for goods in the market is constituted by our supply of goods to it. In order to effectively satisfy other people’s wants we need to not only communicate with them, but understand them. If we don’t, then we’re wasting our productive efforts for a random result. Obviously, we’d benefit personally from learning what other people want, both their present wants and anticipated future wants, and then produce it for them.
So far so good. Most people (except for Keynesians) grasp this very simple point about the market — and how it contributes to civilization and peaceful interaction. But all people aren’t saints, so good, hard-working people risk being taken advantage of as they have nothing to set against such actions. Without a central power such as the state, who will protect us from such people?
Answer: the web of voluntary transactions aligns people’s interests. In the market, “bad people” are not only defrauding, stealing from, or robbing a single person or family. They are, in effect, attacking the community of interdependent producers and network of traders.
Imagine a town with a baker who specializes in baking bread that people in the town like, but that he doesn’t necessarily fancy himself. Instead, he sells the bread in order to earn money that he uses to buy from others what he truly wants. Others similarly specialize their production to produce what others want, including the baker, so that they can use part of their income to buy bread. When a thief steals from this baker, he negatively affects the town’s bread supply — and thereby also makes the baker unable to effectively demand goods from others. This affects a lot of people, not only the baker: it affects all people who wanted to but now can’t buy bread and all those who expected to but no longer can sell their goods to the baker.
The network of exchanges and the specialized production for others thus creates a community of interdependent producers whose interests are generally aligned: they have all increased their productive effort by supplying a single good that is in high demand, and thereby made everybody better off. But it also means it is in their own interest that no one is unjustly treated and disadvantaged, whether the victim of a “bad person” is an existing or potential supplier of goods they desire or existing or potential customer of the goods they produce.
They all benefit from this order, since their productive efforts are used where they do most good. But they are also all in it together — they are all affected if things go wrong. It is not strange, then, to see how towns used to spontaneously organize to deal with crime. Robbing the baker involves not only a robber and his victim: an attack on one is an attack on the community. The robber has by his very actions chosen to not partake in community — to be an outcast.
Effect of the Welfare StateWhat’s happened over the course of the last century with the rise of the democratic welfare state is that these market-based bonds between people within a community have been severed. With the growing state, more and more people have found positions in the economy and society where they do not need to serve others. In other words, the state has made it possible to live off what other people produce rather than contribute to satisfying everybody’s wants.
As these bonds between people are severed, the threshold to engage in criminal behavior becomes lower. But more importantly, as people do not need to rely on their ability to satisfy the wants of others, they don’t understand other people: they have no incentive to learn about their needs and wants, and they have nothing to gain personally from satisfying them. In other words, there is no interdependence and therefore less of a reason to stay away from destructive behavior.
This is exactly what we’ve seen over the course of the past century when the very large state has replaced civil society with centralized systems and market with power. The problem is that when people stop learning about each other, it is easier to resort to conflict rather than cooperation — and it is much easier to see other people as obstructions to your own happiness. Getting rid of them thus increases your share of the (now diminishing) pie, and using and exploiting others for your own benefit appears a means toward satisfaction of one’s own wants.
We increasingly see examples of this type of thinking among entrepreneurs and those who want to be entrepreneurs. They start businesses not as a means to make a living — that is, to indirectly benefit themselves according to the Law of Markets — but in order to do “what they like.” It’s a lifestyle choice that many seem to think they have a “right” to make. Even worse, sometimes they even blame their entrepreneurial failure on “society” for not being supportive enough and not appreciating what they’re offering at the price they’re demanding.
This is exactly backward: to be able to do what you like for a living is a privilege that you can enjoy only if you, by doing so, satisfy others. If you create value for others, you gain value for yourself.
In this type of society where the bonds between people are weakening, it is not strange that people find the idea of a decentralized, spontaneous order outrageously naïve. Competition is here not the sound striving to better serve others by trying different and differentiated ways of satisfying wants, but rather a zero-sum game where there are winners and losers. In this situation, whoever is willing to cut corners, lie, and deceive is immediately better off. The incentives, in other words, are for destroying value and to prioritize short-term gains even if they come at high long-term costs — because those costs may be another’s burden. It’s the very opposite of civilization and an existence that will, if left unchecked and unchanged, eventually degenerate into a Lord of the Flies-type tribalism.
It is not strange that people have a hard time understanding the harmony argument for markets in a time when the state has alienated them from productive interdependence as explained by Say’s Law. The market’s informal, spontaneous cooperation for mutual benefit has been replaced by a statist mindset, which seeks guarantees — and finds it only in formal power.
But it should be obvious from the discussion above that this is not in any sense a guarantee — especially against bad behavior. It is the opposite. Yet it should be recognized that the market also offers no guarantee, strictly speaking. But do we need one when people’s interests are aligned? All we need to trust is that people do what is good for themselves. That’s hardly naïve.
The welfare state has done to black Americans what slavery couldn't do….And that is to destroy the black family. –Walter E. Williams, the Wall Street Journal
On August 14, the Commission on Social Status of Black Men and Boys Act was signed into law. It establishes a nineteen-member panel within the Commission on Civil Rights to examine social problems that disproportionately affect black males.
The act is a conscious response to the death of George Floyd, with the opening section of the bill being subtitled the “George Floyd and Walter Scott Notification Act.” Floyd died on May 25 after a white police officer knelt on his neck for several minutes. Walter Scott died on April 4, 2015, after being shot by a white police officer who had stopped him for a broken brake light. Both have become symbols of police brutality against black males. Invoking them indicates that the new commission will focus on the disparity with which law enforcement and the court system treat black males.
Any spotlight shone on the neglected problem of discrimination against males deserves applause. Higher education is often used to illustrate how far the pendulum has swung from several decades ago, when discrimination against women was rife. A February 1 article in Forbes, “The Collegiate War against Males,” commented on the recent decline in college enrollment. “Most of that fall…is concentrated among men. Between 2015 and 2019…the number of men on campuses declined by 691,643, almost double the smaller fall among women, 348,955. In percentage terms, the male decline of 8.34% was far more than double that among women, 3.18%….In 2015, there were 32% more women than men, but now the differential is nearly 40%.” From family courts to the handling of sexual violence, from protective laws for women to harsh prison sentencing for men, the government unjustly advantages one gender over the other instead of treating all individuals equally under the same law.
The Commission on Social Status of Black Men and Boys is not likely to increase justice, however; it may well damage the cause it seems to champion.
There is reason for skepticism. A DC Commission on Black Men and Boys was established in 2001 by Congresswoman Eleanor Holmes Norton (D-DC), who also cochairs the Congressional Caucus on Black Men and Boys. Predictably, Norton applauds the new act, because it “mandates government action to help improve the condition of African-American men and boys.” There are two takeaways from her comment: government will become more deeply involved in directing the lives of black males, and two decades of activity by the first commission has accomplished little.
The government mandate is unfortunate, for several reasons.
Improving the status and safety of anyone is laudable, but a number of problems exist with the bill’s approach. For one thing, social status refers to a person's standing in a community. It refers to how highly others in society value a person. As long as people are nonviolent, the government has no business dictating what or whom they value. It is akin to mandating what people must think and feel, which is a matter of social control—not justice.
Moreover, the government can elevate the social status of a group only by changing their legal status and treatment. If the change makes all people equal under just law, then it is an improvement. If it elevates one class by harming the status of another class, then it is discriminatory and unjust on its face.
There are two basic ways that government can use the law to influence social status. It can remove any legal entitlements or disadvantages for categories of people and allow the status of each individual to rise or fall on its own. Or it can redistribute status—in a manner similar to redistributing wealth—by extending privileges and opportunities to one group while denying them to another; affirmative action in university admission is an example. The new commission will almost certainly take the latter path. And the disadvantaged category will almost certainly be white males. (Women are unlikely to be disadvantaged, because they are still viewed as “oppressed.”) If the new Commission follows the lead of Norton’s original one, it will make frequent comparisons between the status of black males and white ones as a way to “prove” racial inequity. If this happens, males will be divided into warring groups—black and white—with one category of males benefiting at the expense of the other, with the interests of both in conflict.
Another objection: the new commission tacitly accepts the idea that there is institutionalized racism in America. Although racist individuals and organizations certainly exist, America has overwhelmingly purged its institutions of antiblack bias. Racism is not systemic. In an article entitled “Why Social Justice Warriors Battle ‘Institutional Racism,’” the noted black economist Walter Williams, who teaches at George Mason University, speculated on the ill-defined terms institutional racism and systemic racism. He wrote, “I suspect it means that they cannot identify the actual person or entities engaged in the practice….And it is seen by many, particularly the intellectual elite, as a desirable form of determining who gets what.”
On the other hand, a clear-cut misandry or antimale bias does exist in American institutions and culture. This is especially true of white heterosexual males, who politically lack the intersectional “advantage” of being a racial or sexual minority. But the antimale bias also applies to blacks who are disadvantaged simply because of their gender. In fighting this bias, they should find common cause with white males instead of being politically juxtaposed.
Yet another objection to the commission is that its members almost certainly accept “the legacy of slavery” as the cause of any racism in America. This means it will not address the single most powerful cause of black impoverishment: the decline of the black family, for which government bears much responsibility. The black social theorist Thomas Sowell, who teaches at Stanford University, has written extensively on the decline of the black family. In his article “A Legacy of Liberalism,” Sowell rejects the argument that current black impoverishment is the residue of slavery or due to inherent racism. He refers to “the legacy of slavery” argument as a reason not to think about the subject or rely on evidence, because it replaces research with an emotional reaction. “If we wanted to be serious about evidence,” Sowell observed, “we might compare where blacks stood a hundred years after the end of slavery with where they stood after 30 years of the liberal welfare state….Despite the grand myth that black economic progress began or accelerated with the passage of the civil rights laws and ‘war on poverty’ programs of the 1960s, the cold fact is that the poverty rate among blacks fell from 87 percent in 1940 to 47 percent by 1960. This was before any of those programs began.”
In his article “The Legacy of the Welfare State,” Williams agreed. “The No. 1 problem among blacks is the effects stemming from a very weak family structure. Children from fatherless homes are likelier to drop out of high school, die by suicide, have behavioral disorders, join gangs, commit crimes and end up in prison. They are also likelier to live in poverty-stricken households. But is the weak black family a legacy of slavery?…Here's my question: Was the increase in single-parent black families after 1960 a legacy of slavery, or might it be a legacy of the welfare state ushered in by the War on Poverty?”
In another article Sowell answered, “A vastly expanded welfare state in the 1960s destroyed the black family, which had survived centuries of slavery and generations of racial oppression. In 1960, before this expansion of the welfare state, 22 percent of black children were raised with only one parent. By 1985, 67 percent of black children were raised with either one parent or no parent.” The percentage has held fairly steady since then. And, statistically, the parent figure is usually a mother or a grandmother.
Being effectively fatherless can be devastating. The paper “What Can the Federal Government Do to Decrease Crime and Revitalize Communities?,” issued by the US Department of Justice, offered statistics on children from fatherless homes. The children account for:
Suicide: 63 percent of youth suicidesRunaways: 90 percent of all homeless and runaway youthsBehavioral disorders: 85 percent of all children that exhibit behavioral disordersHigh school dropouts: 71 percent of all high school dropoutsJuvenile detention rates: 70 percent of juveniles in state-operated institutionsSubstance abuse: 75 percent of adolescent patients in substance abuse centers Lawmakers do black people no favor when they advance a narrative that dismisses the importance of the family structure and offers instead dependence on government rather than independence as human beings. As Williams stated, “The undeniable truth is that neither slavery nor Jim Crow nor the harshest racism has decimated the black family the way the welfare state has….The most damage done to black Americans is inflicted by those politicians, civil rights leaders and academics who assert that every problem confronting blacks is a result of a legacy of slavery and discrimination. That's a vision that guarantees perpetuity for the problems.”
Earlier this week, the LA Times reminded its readers that California has the highest poverty rate in the nation.
Specifically, when using the Census Bureau's most recent" Supplemental Poverty Measure" (SPM), California clocks in with a poverty rate of 20 percent, which places it as worst in the nation.
To be sure, California is running quite closely with Florida and Louisiana, but we can certainly say that California is a top contender when it comes to poverty:
This continues to be something of a black eye for California politicians who imagine themselves to be the enlightened elite of North America. The fact that one in five Californians is below this poverty line doesn't exactly lend itself to crowing about the state's success in its various wars on poverty.
Many conservative sites have seized on the information to say "I told you so" and claim this shows that "blue-state" policies fail. One should be careful with this, of course, since there are plenty of red states in the top ten as well. Moreover, some blue states, like Massachusetts, are doing moderately well by this measure:
In the realm of political punditry, though, it matters a great deal whether one is using the regular poverty measure, or the SPM. For one, in the regular poverty measure, California ranks better than Texas, and leftists love to use the standard poverty rate to talk about how truly awful Texas and other red states are. The Supplemental Poverty Measure allows Texans to talk about how awful California is.
If we're going to use census data to guess the prevalence of low-income households, though, the SPM is greatly superior to the old poverty rate. There's a reason, after all, that the Census Bureau developed it, and the Bureau has long warned that poverty rates using the old measure don't make for good comparisons across state lines.
The old poverty measure was a far more crude measure that did not take local costs into account, did not include poverty-assistance income, and basically ignored what can be immense differences in the cost of living in different locations. Many commentators often love to note how the median household income in many red states are below the national average — but then conveniently ignore how low the cost of living is in those places.
The SPM, on the other hand, takes into account the costs of "food, clothing, shelter, and utilities, and a small additional amount to allow for other needs" It includes government benefits, but also subtracts taxes. (A full explanation is here.)
The end result shouldn't really be all that surprising: once we take into account the actual cost of living, including taxes, we find that poverty is actually quite high in California.
How to Alleviate Poverty There are only two ways to reduce poverty and increase the standard of living:
Increase household incomeLower the cost of livingPoverty can be alleviated by simply increasing income. Or it can be done by simply reducing the cost of living. Ideally, both things happen at once, and fortunately, that's usually how it works.
The greatest reductions in global poverty have come about due to the spread of capital and industrial production methods. This is because better and more widespread use of capital leads to two things:
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It increases household income by increasing worker productivity. That is, each worker can produce more stuff of higher value. This means each worker can take home a higher income.
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When we produce more stuff more quickly, that stuff becomes more affordable. Thanks to labor-saving and more efficient machinery, for example, fewer people can make more cars more quickly. In turn, more people can afford more cars because cars are more plentiful, and less expensive.
Over time, more people can buy more stuff at lower prices, thus increasing their standard of living. Even better, thanks to modern capital, those people can also produce more during the hours they work, making it possible to buy even more stuff. Both pieces work together to increase living standards.
One of the biggest problems California is facing right now, though, is that government interventions in the marketplace are making it harder and harder to produce more stuff, thus driving up prices.
The end result is a higher cost of living, and thus more poverty. Kerry Jackson at The LA Times notes:
Further contributing to the poverty problem is California’s housing crisis. More than four in 10 households spent more than 30% of their income on housing in 2015. A shortage of available units has driven prices ever higher, far above income increases. And that shortage is a direct outgrowth of misguided policies.
“Counties and local governments have imposed restrictive land-use regulations that drove up the price of land and dwellings,” explains analyst Wendell Cox. “Middle-income households have been forced to accept lower standards of living while the less fortunate have been driven into poverty by the high cost of housing.” The California Environmental Quality Act, passed in 1971, is one example; it can add $1 million to the cost of completing a housing development, says Todd Williams, an Oakland attorney who chairs the Wendel Rosen Black & Dean land-use group. CEQA costs have been known to shut down entire homebuilding projects. CEQA reform would help increase housing supply, but there’s no real movement to change the law.
Extensive environmental regulations aimed at reducing carbon dioxide emissions make energy more expensive, also hurting the poor. By some estimates, California energy costs are as much as 50% higher than the national average. Jonathan A. Lesser of Continental Economics, author of a 2015 Manhattan Institute study, “Less Carbon, Higher Prices,” found that “in 2012, nearly 1 million California households faced … energy expenditures exceeding 10% of household income. In certain California counties, the rate of energy poverty was as high as 15% of all households.” A Pacific Research Institute study by Wayne Winegarden found that the rate could exceed 17% of median income in some areas.
It is increasingly becoming common knowledge that California is notoriously bad in terms of the cost of housing.
Every time a new "top ten" list of least-affordable housing markets is published, California cities often dominate the top of the list. In this list, for example, San Francisco, Los Angeles, San Jose, and San Diego are all in the top ten.
Housing is perhaps the poster child for the impossibility of getting ahead in California. Much of this is due to locally-based NIMBYism in which local governments actively intervene to reduce new housing construction for the sake of "preserving the character" of the neighborhoods. This is just another way of sawing: "rich people like things the way they are, so you poor people can just get lost. We're not building any more housing."
These same rich people then later pat themselves on the back for voting Democratic and "doing something" about poverty.
But it's not all just local regulations. As Jackson notes, environmental regulations are especially burdensome on businesses, thus driving up the cost of everything. This is especially true of housing which requires land, water resources, and visibly impacts the local environment.
These regulations, mind you, are all imposed on top of already existing federal regulations, and in addition to the environmental regulations that already function with a lower burden to business in other states. Coloradans, for example, aren't exactly living in rivers of toxic sludge, in spite of having fewer environmental regulations — and cheaper housing.
Nor is housing the only industry impacted by these regulations. Mountains of anti-business regulations in the state also make it harder to start new businesses, hire people, and cover the basic costs of expanding worker productivity. Fewer workers get hired. Less capital is deployed to workers. The end result is that worker productivity growth can't keep up with increases in the cost of living. Poverty results.
Recognizing this vise in which the poor are caught in California, the response is always the same: more rent control, more regulations, more more costly hoops for employers to jump through.
"We're taming capitalism!" the politicians tell themselves. Unfortunately, they've driven a fifth of the population into poverty in the process.
But don't expect things to improve for the poor in California any time soon. California is perhaps the single biggest example in the US of how stylish locales become playgrounds for the rich, and a treadmill to nowhere for everyone else.
In recent years, news outlets have carried a number of articles on how workers in silicon valley are living in their cars. Sometimes, the homeless even have jobs at the big tech firms like Facebook. Nearly all of these homeless people have jobs of some sort, though. Thanks to the ruling classes of California, though, a basic apartment is $3,000 per month, while food and gasoline aren't exactly cheap.
The well-to-do tell themselves that the high cost of living is simply "the cost of doing business" for living in such a wonderful place with so many enlightened, intelligent, and beautiful people. People can go to the beach whenever they want, and life is wonderful.
Of course, anyone who has actually lived in California as a non-wealthy person knows that one most certainly can't go to the beach "whenever you want." If one is working two jobs to pay the rent, a day at the beach — after sitting in traffic and paying for parking — isn't exactly a regular event. Moreover, the communities with non-sky-high rents are generally found well inland, and aren't exactly next to Malibu.
This may help explain why, as the Sacramento Bee reported last year, California is exporting its poor to Texas. The beaches aren't as nice in Texas, but many of these migrants are trading in the beaches — which they never see anyway — for an affordable apartment.
Measuring gains or losses in the standard of living is not a simple matter. We know that over the past century in the United States, working hours have declined, and real incomes have increased. By nearly every measure we can imagine, the standard of living in the United States has increased substantially since the late nineteenth century and early twentieth century. But how have conditions changed over just the past 15 or 25 years? That's a lot harder to draw conclusions about, and it's hard to guess if today's younger adults are going to be "better off" than their parents were at the same age.The very issue of deciding what makes one "better off" is a matter of debate. For some people, more leisure time might be preferable to a larger house.
There is no single number or metric we can point to that will tell us that "Americans are now X amount better off than they were in 1990."
Nevertheless, there are various measures we can investigate that can at least give us some insights into how living standards have changed in recent decades.
One of these is "living space." That is, how much space does each person have in his home for daily activities?
It's not enough to just look at the size of houses. We all know on some fundamental level that if 4 or 5 people must share a single bedroom in a home that this is a very different standard of living than if only 1 or 2 people do the same. Moreover, if 6 people are sharing a 1,000 sq foot home, that is a different standard of living than if 2 or 3 people are sharing a home of the same size.
So, is there more living space per person in America today than in the past?
In the article "120 Years of U.S. Residential Housing Stock and Floor Space," researchers Maria Cecilia P. Moura, Steven J. Smith, and David B. Belzer analyze the housing stock available in the US and compare to total population and household size in the United States since 1890.
From 1890 to the housing bust in 2007, average floor space per capita increased significantly from approximately 35 square meters (376 sq. feet) in 1890 to more than 70 square meters (753 sq. feet) in 2007. This was due to both a small increase in the size of housing units over this period, and to a much larger decrease in household size. From 1890 to 2010, the household size was cut in half from more than 5 in the 1890s to approximately 2.5 in recent years.
More recent annual data from the census bureau shows household size has dropped from 3.3 in 1961 to 2.5 in 2017."Historical household tables" https://www.census.gov/data/tables/time-series/demo/families/households.html While household size decreased, "the overall average floor space for units of all building types increased by 13% in the last 30 years, reaching almost 1,800 square feet per unit in 2010," according to Moura, et al.
Thanks to globalization, industrialization, and sizable increases in worker productivity, we'd expect to see an overall increase in the standard of living as expressed in living space. We have seen gains in terms of real incomes and in terms of amenities enjoyed by a large number of households. Not only did the housing size increase during this period, but houses contain many amenities they did not before, such as refrigerators, air conditioners, and dishwashers. Air conditioners, for example, were in only 50 percent of homes in the 1970s, but are in 87 percent of homes today.
If posed with the question of whether or not your housing is better than your grandfather's, the answer almost certainly is a solid "yes."
The Short-Term Trend If we compare living standards today to those of 50 or 100 years ago, we see obvious improvements. But what if we compare to ten years ago or 20 years ago? Can we see similar trends?
Put another way: your housing is better than than what your grandfather had, but how does your housing measure up to your father's?
On the matter of square footage, if we look to recent construction of homes, it still looks like Americans are enjoying more living space. There's no reason to believe that Americans are now squeezing into smaller housing units, even when compared to housing of just one generation ago.
For example, while newly constructed single-family homes did get smaller in the wake of the financial crisis, the decline reversed by 2013, and new single-family homes by 2015 were larger than they'd ever been before.
As the graph shows, new single-family homes are now considerably larger than they were in the 1980s. In 1985, for example, new homes reached a median size of 1,590 square feet. In 2016, that number was 2,482 square feet. Also keep in mind that during this period, household size was also getting slightly smaller in the United States.
New construction in multifamily units has shown less growth, but we still see increases over the past thirty years. In 1985, the median size of new multifamily construction was 882 square feet. By 2016, that number was 1,101 square feet.Historical multifamily data is compiled from here: (https://www.census.gov/construction/chars/mfu.html) and from older "Charateristics of New Housing" reports from the Census Bureau.
That number includes condos and for-sale multifamily. Data on for-rent multifamily units specifically is harder to find, but as the graph suggests, for-rent units aren't all that different from condos.
Clearly, detached houses have gotten bigger faster than condos and apartments, but there has been growth all around over the past thirty years.The longer term trend will only be reinforced by the short term trend of continued growth in new units. Over time, it is older, smaller houses and units that tend to be demolished, further pushing up median unit and home sizes.
Note, also, that where possible I've stuck to median numbers and not averages. This is so our numbers aren't heavily skewed by a small number of enormous mansions being built by the super-rich.
Indeed, we can see growth is not being driven by the super-rich and mega-sized houses and condos if we break out the new units by size.
There has been an increase in the number of larger units as a percentage of all units. However, a sizable portion of new units continue to be under 1,200 square feet in multifamily housinghttps://www.census.gov/construction/chars/mfu.html The graph shows how many units of each size group are produced as a proportion of all new units. "Characteristics of Units in New Multifamily Buildings Started" and "Characteristics of Units in New Multifamily Buildings Completed.". Large rental units over 1,800 square feet have doubled from two percent to four percent since 1999, but still only make up a small portion of all units.
With single-family housing, though, there has been a more noticeable shift toward larger units.https://www.census.gov/construction/chars/completed.html "Characteristics of New Housing" New homes built at under 1,400 square feet are quickly disappearing, and fell from 13% of all new units in 1999 to only 3% in 2016.
We can contrast this with single-family homes of 4,000 square feet or more which increased from 4% to 11% of all new units from 1999 to 2016.
While there has definitely been a shift toward larger single-family homes, mid-sized homes are hardly disappearing.
When we combine these observations with those of Moura, et al, we see a picture of sustained growth in housing size over the past generation. Moreover, this growth has even continued over the past fifteen years, although some metrics show stagnating incomes over that time.
Is Housing Is Unaffordable, Why Do Homes Keep Getting Bigger? This information all suggests something of a conundrum. We're often being told that housing is becoming unaffordable, and Americans are too deeply in debt. If that's the case, though, then why do houses keep getting bigger?
After all, if Americans are getting squeezed on housing, shouldn't consumers be demanding smaller and more economical living spaces? That is indeed what tends to happen during recessions and immediately following financial crises. We saw it during the Great Depression, we saw it during the recessions of the early 1980s, and we say it in the wake of the 2008 financial crisis.
It's true that new multifamily production hasn't returned to its former peak in terms of unit size, but new housing size overall hasn't even fallen back to 1990s levels. And the 90s wasn't exactly a period of austerity.
One possible explanation can be found in the fact that Americans are apparently happy to go into debt to avoid having to scale back on square footage. As recent data from the Fed has shown, mortgage debt in America is now only 4 percent below its sizable 2008 peak, and is rapidly heading toward its old peak levels reached right before the financial crisis. Total household debt has climbed to record levels.
Thanks to low, low interest rates, Americans — faced with either buying a smaller house of going into debt — are apparently willing to take on more debt. At the same time, developers continue to build apartment building with larger units — convinced that the new units will find renters. Given relatively low vacancy rates for rental housing in recent quarters, they appear to be right.
At what point, though, will rising housing costs lead to a real decline in the size of houses and apartments? In 2017, mortgage payments as a percentage of income hit a seven-year high. Data suggests that housing costs proportional to household costs and income has been hitting new highs in various income groups since 2014. Not surprisingly, lower-income households have gotten the worst of this.
But when we look at most renters and homebuyers today, they're living in larger units than did their parents a generation ago.
There are hints that this trend may be at least temporarily slowing down. The most recent numbers for 2016 show that square footage in new homes went down slightly. And multifamily units are now largely flat in terms of size. It's possible this points toward the limits of taking on more and more debt. And it may also point toward stagnation in real incomes. Moreover, a new recession would very likely send many people scrambling to economize on housing.
For now, though, it looks like many Americans are still living large when it comes to housing. It's true that housing costs are increasing — but in many cases, people are paying more for more housing.
The United Nations is at it again with yet another report on how bad poverty is in the United States — and how things would improve greatly if the US raised taxes. This time, the UN denunciation of the US has raised the ire of US ambassador Nikki Haley who has called the report "patently ridiculous."
Specifically, Haley was responding to a June 18 report by UN bureaucrat Philip Alston. Alston concluded that poverty rates in the US are among the worst in North America or Europe.
How did Alston come to this conclusion?
Well, first of all, it's important to note that he didn't collect any new information.
The report comes at the end of a two-week visit to the United States conducted back in December of 2017. At the time, Alston released a similar preliminary report.
The new report to the UN Human Rights Council is just an update of the old report.
Moreover, Alston could have easily authored the report had he just stayed home. The report is based simply on existing data already collected and published by agencies such as the US Census Bureau and the OECD. Any undergraduate could have written a similar report using data he found online.
One example of this method is found in Alston's reporting on poverty.
According to the report:
About 20 per cent of children live in relative income poverty [in the United States], compared to the OECD average of 13 per cent.
Here, Alston has essentially cut and pasted text from an existing OECD report. There's nothing wrong with this, per se, except for the fact that Alston has implied he has recently completed a thorough survey of poverty in the United States — even though he clearly hasn't.
This November 2017 report from the OECD reads:
[C]hild relative income poverty rates are very high – around 20% of children in the U.S. live in relative income poverty, compared to just over 13%, on average across OECD countries.
The report also includes this graph:
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But there's a problem here with Alston's use of the data. The OECD report refers to "relative income poverty," which isn't what most people think it is. Most people would think a poverty rate should measure incomes against the cost of maintaining a certain basic living standard. But this "relative" poverty measure isn't that sort of measure. It's just a measure of how many people in a country make 50% or less of that country's median income level.
So, if you have country with a very low median income, and a very low standard of living, it's possible to have very low poverty rates — so long as most people make more than fifty percent of that country's lousy median income level.
This allows the OECD to claim — as it does in the graph — that the US has higher poverty rates than Mexico.
In order to understand this more fully, let's look at the OECD's own measure of disposable median income for each of its member countries (2015 data) in Graph A:
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These numbers include both ordinary wage income and also cash assistance from welfare programs. It is also adjusted for local purchasing power and rendered in international dollars.
Now, note in the footnote of the OECD graph above that you're poor — regardless of where you are — if you make 50 percent of the local median income. So, 50 percent of the median income in Greece (with a median income of $13,000) or 50 percent of the median income in Norway (with a median income of $39,000) are both simply "poverty."
But let's look at just how huge these differences can be. If we look at incomes at the 50 percent level for each country, we get in Graph B:
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If you're going to be poor by this measure, you'll have a higher income in the US than in many other places. For example, the poor in the US at the median poverty level have incomes 34 percent higher than the median poor in Italy. When comparing the US and Spain, the US comes in at 40 percent higher.
Put yet another way, if you make $15,000 in the US, you're poor. But if you make $15,000 in France, Germany, the UK, or Italy, you're not poor. Why? Because the overall median incomes in those non-US countries are lower.
Basically, by this measure, poverty has little to do with what resources you have at your disposal. It's more or a measure of how much you're making compared to how much other people are making. It's a measure of income inequality, not poverty.
The problem with making comparisons this ways can also be illustrated by looking at the US poverty-level income compared to the median income from other countries. For example, the US poverty-level income is so high it's at 70 percent of the median income in Spain and 67 percent of the median income in Italy in Graph C:
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If you have a median poverty-level income in the United States, your income is 95 percent the size of the median income of all households in Portugal. Stated broadly, we might say that poor households in the US have pretty much the same income as the overall population in Portugal. Or, one might say the median poverty income level in the US is nearly two-thirds as high as the overall median income of everybody in the United Kingdom.
Clearly, if a poor household in the US has an income 40 percent higher than a poor household in Spain — then these two types of "poverty" are not the same.
Measuring Poverty by Actual Standards of Living A more honest way to measure poverty would be to look at actual indicators of the standard of living. This would include household amenities, living space, labor-saving appliances, entertainment, and so on.
For example, living space in the US, even among the poor, is measurably more plentiful than elsewhere. As noted by Robert Rector at the Heritage Foundation:
Housing space can also be measured by the number of square feet per person. The Residential Energy Consumption survey conducted by the U.S. Department of Energy shows that Americans have an average of 721 square feet of living space per person. Poor Americans have 439 square feet. Reasonably comparable international square-footage data are provided by the Housing Indicator Program of the United Nations Center for Human Settlements, which surveyed Housing conditions in major cities in 54 different nations. This survey showed the United States to have, by far, the most spacious Housing units, with 50 percent to 100 percent more square footage per capita than city dwellers in other industrialized nations.
America's poor compare favorably with the general population of other nations in square footage of living space. The average poor American has more square footage of living space than does the average person living in London, Paris, Vienna, and Munich. Poor Americans have nearly three times the living space of average urban citizens in middle-income countries such as Mexico and Turkey. Poor American households have seven times more Housing space per person than the general urban population of very-low-income countries such as India and China.
As Rector notes, "There is a vast gap between poverty as understood by the American public and poverty as currently measured by the government." This is due to a wide variety of reasons. One reason is that income surveys don't count non-cash poverty relief programs. This means programs like Medicaid and food stamps aren't included in the incomes of low-income households in America. That makes those incomes looked significantly lower than they are.
Poverty measures also can't take into account heads of household who have low incomes, but also don't have a mortgage because they're paid off their houses already. This is not an insignificant factor in measuring poverty among the elderly.
All of this is important because in Alston's report to the UN, he relies on US government data using the traditional poverty-rate measures. He then combines these with the OECD's "relative" poverty measures to conclude that poverty is "shockingly" widespread in the United States.
A closer look at the data, though, suggests things are more complicated.
None of this is to say that poverty doesn't exist anywhere. Of course is exists, and issues like homelessness and true poverty are real for some people. Sweeping claims like those by Alston tell us very little, however, about the real state of poverty in the US.
It's become common now to read arguments claiming that immigrants — broadly speaking — are good for the economy, or good for "America" in some other fashion.
"Migrants and refugees are good for economies," Nature magazine claims. "Open Immigration Is Good for the Health of People and the Economy," another writer claims. "1,500 economists to Trump: Immigrants are good for the U.S. economy," CNN insists.
Now, I'm not one to argue against freedom of contract and exchange between US citizens and foreign nationals. In other words, if a private employer wishes to offer a job to a foreign national, that foreign national should be free to accept. Similarly, if an American landlord wants to enter into a lease agreement with a foreigner, that ought to be the landlord's prerogative.
Note that in these cases, however, the private parties involved are specific individuals. The landlord and the employer have not entered into agreements with some vague concept of "immigrants." They're doing business with certain individuals who happen to be immigrants.
At the heart of this reality is a very important fact: immigrants are not homogeneous. Each person has different skills, different needs, and different luck. Moreover, immigrants aren't even homogeneous within certain national groups. An English-speaking middle-class non-felon from Mexico clearly has little in common with a gangland assassin from the same country.
Thus, we cannot say that immigrants in general are good for the economy or good for anything else. Some are. Some aren't.
For this reason, it would of course also be factually incorrect to say "migrants and refugees are bad for economies," or "immigrants cause crime" or "immigrants are a burden on the public purse." No doubt this is true about some immigrants.But it's certainly not true of all of them. Thus, every time I see a headline that blares "Immigrants are good for America," I wonder: "Do they mean all of them?"
But which ones are delightful neighbors and customers, and which ones are future drains on the taxpayer?
This has always been the central problem of immigration policy.
A Different Approch Contrary to myths about the United States having totally open borders in the nineteenth century, many US states did, in fact, employ a variety of legal schemes to prevent entry to certain immigrants who were thought to be paupers who would be a drain on the public purse. (States did this because most people at the time agreed the federal government was not granted power of immigration matters.) New York and Massachusetts were especially notable for efforts to refuse entry to certain immigrants thought to be unemployable.
[RELATED: American Immigration Policy 160 Years Ago by Ryan McMaken]
These laws go back to colonial times — and even to England — where poor laws were devised to prevent outsiders from settling — uninvited — in a new village or district where they could then exploit poverty-relief resources intended for the locals.
It was not until later that the Federal governments began to set overall quotas and to even base immigration laws on country of origin rather than on the specific traits of immigrants.
Thus, from the 1880s onward, the Federal government increasingly began to adopt a prohibitionist approach, the most notable instance of which was the Chinese Exclusion Act of 1882.
Quota systems like this, however, have always smacked of central planning and anti-capitalism. They engage in wholesale prohibition and regulation of entire classes of immigrants, regardless of the wants or needs of native employers, families, and charitable groups who might be interested in hosting these immigrants.
A wholesale ban on immigrants from Country X is about as compatible with a free economy as is a ban on imports from Country Y. It's nothing more than a case of politicians deciding arbitrarily what sorts of economic activity Americans will be allowed to engage in.
Moreover, even in the days when states attempted to refuse entry to suspected "paupers, vagabonds, and possible convicts," entry could sometimes be dependent on the use of bonding. In these cases, those those who attempted to "import" immigrants were required to post a bond under which the state could be compensated in case the new migrants ended up on the dole — whether in prison or in the poorhouse.
[RELATED: "Only the Private Sector Can Determine the "Correct" Number of Immigrants" by Ryan McMaken]
Reasonable Americans recognized that while some immigrants might bring risks to the native population, many did not. This, incidentally, is true of all imports, human and otherwise. After all, agricultural imports have always brought with them the risk of invasive species or diseases that threaten native crops. The response to these threats has been to address the risky imports without banning the good.
In a modern context, resurrecting and emphasizing strategies like these — while eschewing a prohibitionist approach — would help to lessen the role of the state in the lives of both citizens and migrants alike.
For this reason, immigration policy ought to be adopted to allow for more flexibility, free association, and market exchange, while still addressing issues such as criminality and what was once called "pauperism":
Expedited or immediate entry for any immigrant who forfeits all access to publicly funded subsidies and amenities including public schools, Medicaid, and similar programs.A sponsorship, bonding and "adoption" program for private individuals, employers, and charitable organizations who are willing to financially "vouch" for immigrants. Should these immigrants turn out to be criminals or users of public funds, the sponsoring entities will be held liable. Immigrants who can find no sponsor in these situations will be deported.Abolish immigration ceilings, but restrict entry to immigrants who are sponsored and bonded, have forfeited access to public programs, or who can demonstrate financial independence. The goal is to allow for greater freedom for American citizens to engage more freely in trade and other exchanges with immigrants worldwide, while also limiting the risks to taxpayers. This also naturally limits the total volume of immigration — without arbitrary government ceilings — since sponsorships and bonding will be limited by the availability of private resources.
This plan, of course, will fail to please those anti-immigrant enthusiasts who simply don't want any freedom of movement across the border at all. They think their personal feelings about American demographics and culture justifies using the power of the federal government to override private agreements and free association. On the other hand, this plan will also fail to please those Americans who are dedicated to maximizing the inflow of immigrants for ideological and political reasons. For them, immigration is a means of re-shaping American culture to better suit their preferences. And the more it's subsidized by government, the better. Both sides look to government to force their own immigration preferences on others, and to override the decisions of the private sector, which the activists on both sides mistrust.
For a great many Americans, though, their concerns are often limited to fears about criminality and strains on taxpayer-funded resources. But as with so much else, these problems can be addressed by moving more in the direction of private markets and allowing immigration flows to be determined more by the private sector, whether for-profit or charitable.
While one often hears a lot of talk about the virtues of "mom and pop" shops (and the evils of "big box" stores) policy makers do remarkably little to encourage the growth and health of small businesses. While the federal government has created a federal boondoggle ostensibly designed to favor small business — known as the Small Business Administration — only a tiny number of businesses ever benefit from anything the agency does.
Policies Stacked Against Small Businesses In actual practice, policymakers fawn over large firms, creating special programs for tax breaks and subsidies, as made obvious every time a large firm looks for a new place to put a corporate headquarters. The stated political justification is often that "this business will produce a large number of jobs!" This rationale, however, ignores the fact that if a thousand of the city's small businesses were given a similar tax break, they would likely produce a comparable number of new jobs. This is conveniently ignored, and policymakers instead choose to favor certain large firms, which in turn makes it harder for small firms to compete.
At the same time, governments at all levels relentlessly hand down ever more regulations and mandates to businesses of all sizes. Yet it is small firms who suffer the most because they have less access to financing, equity, and resources needed to cope with mounting regulatory requirements. Licensing and labor regulations create more pitfalls for small business owners to fall into, while locking many potential business owners out of industries entirely, unless they comply with arbitrary "training" or certification mandates. These mandates can be quite draconian, such as Iowa's requirement that barbers receive 2,100 hours of training — more training than is required of a paramedic — in order to cut hair.
Other regulations indirectly disadvantage small businesses as well. As finance researcher Karen Petrou noted in the wake of the Great Recession, banking regulations in recent years have made it harder on small businesses:
[C]apital requirements imposed after the banking crisis make it a lot more expensive for banks to do a startup small-business loan than go into wealth management. Startup loans are riskier than wealth management, of course, but the capital costs have become prohibitive, and banks don’t lose money on purpose.
Small Businesses Increase Competition for Workers It's at this point that a seasoned reader might expect me to go into a variety of explanations about how the small business economy is important to GDP growth, and to employment growth, and to vague notions of "innovation."
But that's not where I want to go with this.
Yes, the small business economy is good for employment and economic development. But small businesses also serve very important social functions, while offering benefits to many workers as well.
The small business economy offers more options for workers who are competing for wage work, while also offering a potential exit from wage work altogether — and entry into sole proprietorship.
In Human Action, Ludwig von Mises notes that one of the greatest limitations on a worker's bargaining power with employers is the ability of a firm to exercise monopoly power over hiring. The thing is, this is impossible in a relatively free market. So long as new firms can enter the marketplace, hiring firms will come under pressure from competitors, and thus bid up workers' wages. As Mises notes, firms must compete with each other for all types of resources, whether building materials, square footage, or financial services. It is no different with workers. Consequently, one of the worst things that can happen to a worker is for governments to create what Mises calls "an institutional restriction of access to entrepreneurship." If governments act to limit the ease with which new businesses can enter the marketplace and compete with existing firms, this lessens the power of workers. The more firms a worker has to chose from, the better off the worker is. This is, of course, facilitated by a diverse and healthy small business economy.
More Potential Opportunities for All Types of Workers Benefits for workers also extend to "eccentric" or "niche" workers who might find themselves otherwise relatively unemployable.
After all, large firms often become large firms because they excel at catering to the needs of the most common preferences in the marketplace. Workers who are accustomed to dealing with these mainstream preferences — whether they be along linguistic, cultural, or socio-economic lines — will be a good fit at the large firms. On the other hand, a worker who has poor English-language skills, but who is well versed in in dealing with customers of a certain ethnicity, may find employment far more easy to come by among certain small business owners who cater to a niche, ethnic-enclave, or socio-economic group.
In other words, the existence of numerous small businesses don't just provide more employment opportunities in the abstract. They often provide more opportunities to workers who have the most trouble in finding employment otherwise.
This is part of the reason why small business ownership has so long been an important part of economic development for ethnic minority groups and for immigrants. Today in the United States, around 25% of U.S. firms are founded by immigrants, and this share rises to above 40% in states like California and NewYork.
And immigrant small business owners are often just part of a growing economy of minority-owned businesses, whether founded by native-born or immigrant owners. According to CNBC:
Business ownership among minorities has been on the rise in recent years. Between 2002 and 2007, minority-owned businesses increased 46 percent, while nonminority-owned businesses grew 10 percent during that same period...
In 2007, Asians owned 1.6 million businesses, African-Americans owned 1.9 million, [and] Hispanics owned 2.3 million.
It's not a coincidence that many people outside the cultural mainstream are founding their own businesses. Often, these businesses are founded precisely because they provide relatively better job security and flexibility to owners and workers who could not find similarly attractive terms at larger mainstream firms.
Benefits Beyond Money Profits Economists often debate whether or not the small-business economy is "efficient." Some have even suggested that small businesses should be regarded as harmful because they use resources that larger firms might be able to more "efficiently" use due to advantages of economy of scale.
This is, of course, a terrible way of looking at small businesses
In addition to the benefits offered workers, small businesses often provide a wide variety of benefits to both owners and consumers in the form of services to the community, and the psychic profits afforded to owners.These services cover a wide variety of industries. Many often assume that minority-owned businesses as nearly all retail outlets, but historically, retail has only constituted one-quarter of these businesses. The rest have included everything from construction to financial services such as insurance. (https://www.nap.edu/read/9719/chapter/10) Bookkeeping and auto repair are also among the most common types of small businesses. Unfortunately for small businesses, many of these benefits don't show up as money profits, and thus economists ignore them.
For example, it is clear that that demonstrated preference of a small business owner is to run a small business even if, in theory, he or she might be able to command a higher wage some other way. It's not difficult to imagine why this might be. Many small business owners — even if the enterprise does not provide for an especially high income — prefer self-employment to collecting a wage because it offers the sort of flexibility, control, and peace of mind that is not often available to wage earners. While self-employment can often mean long hours, it also often means the proprietor is unlikely to lose all of his income at once, due to being laid off. Even if the business becomes less profitable, the proprietor is not going to walk to his desk one day to find a pink slip. Moreover, if the economy is weak, a business owner can temporarily cut his own wages with more flexibility and ease than he can normally cut the wages of an employee. If times are good, a business owner can temporarily increase his own hours (and income) to take advantage of the sudden increase in demand. For a great many business owners, this sense of control over one's schedule and career are worth it, even if the full benefits do not show up in any government statistic.
Negative Attitudes Toward Small Business Endure In spite of all of this, we can expect both policymakers and pundits to largely ignore small businesses and to continue to ignore the high costs imposed on small firms and small entrepreneurs by government regulations.
Some even continue to attack small business owners because they are allegedly not regulated enough.
Last year, for example, the left-wing Jacobin magazine declared that "small businesses are overrated" and that "[w]e shouldn’t fetishize mom and pops. They offer lower wages, skimpier benefits, and inferior labor protections."
This "analysis" by author Matt Bruenig attempted to make the case that since some government regulations don't apply to businesses with fewer than 15 employees, this creates a "loophole" through which workers can be oppressed with impunity by small business owners. The ideal economy for Bruenig, it seems, is one in which even the smallest firm must do all the same paperwork and pay the same government mandated benefits as huge corporations.
In real life, of course, this would ensure that few new small firms are ever created at all.
Fortunately, even the center-left Institute for Local Self-Reliance sees the danger in attacking small businesses. As noted by the ILSR's Stacy Mitchell, small businesses disperse economic resources more evenly throughout a community, and, as Mises noted, they provide more options to employees while creating more competition for large firms. Nor do small firms really pay less, unless we're talking about highly-paid managerial jobs. Although Bruenig thinks small business should be trashed because they allegedly pay lower wages than large firms, Mitchell writes:
For low- and middle-income workers, there is no wage gap between small and large firms. People in the bottom 50 percent of the income distribution earn about the same working at large firms as they do at small. In other words, the fact that big companies pay more on average is solely a function of the earnings of their highest paid employees.
In fact, this myth that larger firms offer a cornucopia of higher wages for everyone has become widespread across the ideological spectrum. A belief in this trope is partly why Kevin Williamson at National Review last month insisted that big business is getting the short end of the stick thanks to a romanticizing of small business. But in the age of "too big to fail," the idea that big firms are America's punching bag is not terribly convincing. Meanwhile, recent efforts by conservatives and leftists to denounce small businesses as overrated is not an encouraging trend.